2025 CFA Level II Exam: CFA Study Preparation

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Stock and Bonds:

They represent financial assets. They are claims on the economic output (profits) of a business.
They generate periodic cash flows (interests and dividends).
Valuation is based on the estimation of future profitability and cash flows (NPV valuation method).

Commodities:

They are almost always physical assets with an intrinsic economic value.
The financial instruments that are based on commodities are not financial assets but derivative contracts with finite lifetimes.
The valuation of commodities is based on a discounted forecast of possible future prices (based on such factors as the supply and demand of the physical item).
Owning a commodity may incur transportation and storage costs (periodic cash outflows).
Commodity investment is primarily via derivatives. The futures market helps market participants with price discovery and hedging price risk when price is either a critical source of revenue or cost in their business operations.

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