What are the three forms of market efficiency?
Sample Investment Banking Interview Questions
Generally speaking, investment banking interview questions will fall into two categories:
1. Technical Questions: To determine your aptitude and knowledge of finance, accounting, valuation and the investment banking business.
2. Fit Questions: To determine your fit for the job and the firm.
Investment Banking / Corporate Finance / Private Equity
What makes a good LBO candidate?
What are some exit strategies for an LBO?
A client needs help evaluating whether to make an acquisition or not. What criteria would you use to help him make a decision?
What are the different sources of synergies in M&A?
What tactics do companies use to fight a hostile take-over bid?
What are the advantages and disadvantages to raising equity vs. debt?
Walk me though the primary methods of valuing a company and the pros and cons of each:
How do you calculate Unlevered Free Cash Flow?
What is the difference between LIFO and FIFO Inventory Valuation?
If prices are increasing, would you use FIFO or LIFO as a CFO?
If you could choose between two of the three primary financial statements for valuation purposes, which would you choose?
How would you describe the concept of terminal value to a lay person? How do you calculate a company’s terminal value?
Company A wants to buy Company B for $600 million, the max they think it is worth. However, Company B wants $630 million. Company A could use stock v. cash for the additional $30 million. Under what circumstances might Company A agree to the additional $30 million?
If I gave you $100 a year for 10 years or $900 today which one will you choose?
How did the recent sub-prime crisis result in major write-downs for investment banks?
Capital Markets
Any coupon bond can be expressed as a portfolio of ________.
Describe the concept of Black Scholes to a lay person.
Describe the concept of bond duration to a lay person.
Describe the concept of a bond’s yield to maturity.
Consider the following investment:
Cost of investment: $1,000
2 equally likely events: Pays $800 in a weak economy and $1,400 in a strong economy
The risk free rate is 4%.
1) Calculate the expected return of the investment.
2) Calculate the expected return
3) Calculate the implied market risk premium.
Calculate the real interest rate using the nominal and inflation rate.
What is the difference between idiosyncratic and systematic risk?
An investor can diversify away _____ risk but not ____ risk.
What happens to the duration for a zero coupon bond when you introduce coupons?
Interpret the following notation: 0.5F2.5 = 4.5%
How would a fund or treasury manager fund future cash flow liabilities with bonds?
How can you make a profit on an overpriced bond?
How can you make two positively correlated securities negatively correlated?
When you buy a put option, you make money when the stock price goes ________.
You are a treasury manager. How do you match the duration of assets to liabilities?
To prevent arbitrage, the price of an asset must equal the price of ____________.
What is the payoff when buying a put option?
What is the payoff when selling a put option?
What is the payoff when selling futures?
Should the bonds below trade at a premium or discount if the yield is 8%?
Bond 1) Pays a 10% coupon
Bond 2) Pays a 5% coupon
What is the standard deviation of a portfolio when you combine a risky asset with a risk-free asset?
What are the three forms of market efficiency?
What are three determinants of bond duration? Which one of the three changes after a bond issue?
What can the slope of a yield curve or term structure tell us?
What do forward rates represent?
What does an inverted yield curve mean?
What does it mean if a bond has a duration of 5?
What happens to the price of a bond as the maturity increases?
What happens to the value of a call option if the discount rate increases?
What happens to the value of a call option if the stock price increases?
What happens to the value of a call option if the strike price increases?
What is the duration for a zero coupon bond?
What is the theory behind pricing stock options?
What makes a market efficient?
Decribe the concept of the yield curve to a lay person.
Your Story
- Why investment banking?
- So, what brings you to interview with XYZ Bank?
- What do you know about XYZ Bank? Our culture? What appeals to you about the firm and the culture?
- Why did you choose to interview with us?
- Why are you interested in the industry? Why are you interested in this field of work?
- What do you know about the investment banking industry and why are you interested in a career in this industry?
- Why banking over consulting?
- Why our firm relative to the competition? What differentiates us?
- What do you think an investment banker does during a typical day?
- Why investment banking versus sales and trading? What is the difference?
- In what area of investment banking do you want to work?
- Do you want to work in an industry or product group?
- If you were not offered a position in investment banking, what other jobs would you consider?
- Who have you met from our firm?
- How did you learn about our organization?
- Where do you see yourself in five years?
- How do you see the future of investment banking? What action do you think our industry leaders should take?
School-related
- Why did you select your college or business school?
- What’s your major, why did you choose your major?
- At what point in your career did you think an MBA was necessary?
- What courses have you liked most? Least? Why? What was your best and worst subject in school?
Self-awareness
- Tell me about yourself.
- Walk me through your resume. Do not simply recite details from your resume. Have a good, concise story prepared that sells why you are a great fit for the job. Emphasize transferable skills form prior jobs and activities.
- Talk about your resume not in terms of what you did, but why.
- What motivates you?
- What are your strengths and weaknesses? Your strengths should sell why you are a great fit for banking. Your weaknesses should not be those that preclude you from being a good banker. Being bad at math or not detail oriented are terrible weaknesses to have.
- Tell us about a failure.
- How would your friends describe you?
- How would your peers describe you? How would a supervisor/manager in a previous job describe you?
- What do you really want in life?
- What is important to you?
- What do you do in your spare time?
Teamwork
- Give an example of how you worked on a team.
- Tell us about a team experience that went poorly and why. Difficult team situation
- Describe a situation in which you were able to build team spirit during a time of low morale.
- What kinds of people do you have trouble getting along with?
- Do you like working with people?
- Would you rather have a job that interacts with people or where you can work alone?
- Give me an example of a time when you had to resolve conflict with a co-worker.