Series 7 Exam Question 5: Answer and Explanation

Question: 5

An investor has held shares of ABC restricted stock for over one year. ABC has 3,000,000 shares outstanding. The most recently reported weekly trading volumes for ABC are as follows:

Week Ending	Trading Volume
July 31	30,000 shares
July 24	40,000 shares
July 17	25,000 shares
July 10	35,000 shares
July 3	40,000 shares

What is the maximum number of shares the investor can sell under Rule 144?

• A. 30,000
• B. 32,500
• C. 35,000
• D. 40,000

Correct Answer: B

Explanation:

B. Because this is restricted stock, the investor may sell the average weekly trading volume for the previous 4 weeks or 1 percent of the outstanding shares, whichever is greater.

$\begin{array}{c}\frac{30,000+40,000+25,000+35,000}{4}=\frac{130,000}{4}=32,500\\ 1\%\times 3,000,000=30,000\end{array}$

The average weekly trading volume for the previous 4 weeks (the top 4 numbers) is 32,500 shares, and 1 percent of the outstanding shares is 30,000. Since 32,500 is larger, that's the answer.