Series 7 Exam Question 10: Answer and Explanation

Question: 10

A syndicate is underwriting a new stock offering in an undivided account. The offering is 5,000,000 shares, and a member of the syndicate is responsible for selling 500,000 shares. After selling the entire 500,000 shares of the allotment, the manager reports there are 1,500,000 shares left unsold by other members of the syndicate. How many shares is the syndicate member responsible for selling at this point?

• A. 0
• B. 100,000
• C. 150,000
• D. 300,000

Correct Answer: C

Explanation:

C. If this underwriting were set up on a divided (Western) account basis, the syndicate member would be done since the member sold its entire allotment. However, since this underwriting was set up as an undivided (Eastern) account basis, this syndicate member is responsible for a percentage of the shares left unsold by other members. The syndicate's responsibility is equal to the percentage of the offering the syndicate signed up for. The original offering was for 5,000,000 shares, and this syndicate member signed up to sell 500,000 shares or 10 percent of the offering.

$\frac{500,000}{5,000,000}=10\text{ percent}$

Because there are 1,500,000 shares left unsold by other syndicate members, this syndicate member is responsible for selling another 150,000 shares.

$1,500,000\text{ unsold shares}\times \text{10\%}=150,000\text{ shares}$