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STC series 7 Progress Exam 3A questions with correct answers
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STC series 7 Progress Exam 3A questions with correct answers
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STC series 7 Progress Exam 3AAlong with his application, a customer makes an initial $3,000 contribution into a variable annuity. Five
days later, he decides that he doesn't want the investment and surrenders the annuity. Because the
surrender occurred within seven days of the application being accepted, the member firm must:
A. Return to the client the full amount of the initial payment
B. Return to the client any commissions it earned
C. Return to the insurance company any commissions it earned
D. Obtain a signed statement from the customer which indicates that he understands he will lose a part
of his investment - correct answer ✔✔C. Return to the insurance company any commissions it earned
Under FINRA's Conduct Rules, dealer agreements must include a provision which states that
commissions on variable products will be returned by the broker-dealer to the insurance company if the
variable contract is tendered for redemption within seven business days after the application is
accepted. Some variable contracts may contain a free-look provision, but these clauses are typically
included because of state insurance laws, not because they're mandated by FINRA
The most significant factor affecting the net asset value of a mutual fund on a day-to-day basis is:
A. The number of shares outstanding
B. The market value of the portfolio
C. The demand for the fund's shares
D. The ratio of cash to the market value of the portfolio - correct answer ✔✔B. The market value of the
portfolio
The formula for the net asset value = (Market value of the portfolio + cash - liabilities) / Number of
shares outstanding
Changes in market value of the securities held by the fund are responsible for most of the change in a
fund's net asset value. All funds hold cash to some degree, but it does not really affect the NAV
calculation. Remember, if invested, the cash figure would be part of the market value of the portfolio.
The member of a limited partnership who assumes liability for the debts of the entity and is usually
concerned with its overall management is the:
A. General partner
B. Senior limited partner
, C. Senior member of the management committee that is chosen by the limited partners
D. Limited partner - correct answer ✔✔A. General partner
The general partner is the member of a limited partnership who assumes liability for the debts of the
entity and is usually concerned with its overall management. Limited partners have no management
abilities. The references to a senior limited partner or senior member of the management committee are
simply distractor answers.
A customer writes an IBM October 120 call and receives a $4 premium and buys an IBM October 100 call
and pays a $12 premium. IBM is currently selling at $108. Assume the customer later sells the IBM
October 100 call for $20. The IBM October 120 call, which he initially sold expires. The customer will
realize a:
A. $400 loss
B. $400 profit
C. $1,200 loss
D. $1,200 profit - correct answer ✔✔D. $1,200 profit
If the customer sold the call bought at $12 for $20, he will realize an $800 profit. If the call written for $4
expired, the $400 received will also be a profit. The customer will realize a $1,200 profit ($800 profit on
the closing sale of the call + $400 from the call that expired = $1,200 profit).
The custodian bank of a mutual fund:
A. Manages the fund
B. Acts as the distributor of the fund
C. Holds the fund's cash and securities and performs essential clerical functions but does not manage the
fund
D. Guarantees investors against all losses that may be incurred if the fund shares should decline in value -
correct answer ✔✔C. Holds the fund's cash and securities and performs essential clerical functions but
does not manage the fund
Explanation: The custodian bank of a mutual fund only holds the fund's cash and securities and performs
important clerical functions. It does not manage the fund, which is the responsibility of the investment
adviser. The custodian bank does not distribute the fund or guarantee investors against any loss that may
be incurred if the fund should decline in value.
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