Investment Banking Interview Questions & Answers

Below is a real exemplar of a form that was used by investment bank professionals to hire new analysts and associates. The form includes the questions asked, a well as the solution key .

Analyst/Associate Investment Banking Interview Questions

This is based on a real form used at a bulge bracket bank for their investment banking interview questions in the hire march .
sum Interview time : approx. 45 minutes .

Checklist for Interviewer:

• Welcome, introduce yourself and your position, and thank the interviewee for their time and interest.
• Clarify the time for the interview and explain that you may interrupt if necessary, etc.
• Provide an outline of what they should expect during the interview. Highlight areas to be covered.
• Mention you may take notes & give candidate permission for “thinking time”.

Bank/Industry Overview (0-5 minutes):

Warm up by talking with the candidate about how great our bank is and brag about all our big transactions.

Employment History / Resume (5 minutes):

Opportunity for the interviewer to question the candidate about the work experience that is noted on their resume.
for example, “ Please walk me through your resume in 5 minutes or less.

Problem Solving Questions (5 minutes):

This section of the investment trust interview questions provides penetration into the campaigner ’ s critical remember skills .
interview # 1
“How many hairstylists or barbers do you estimate there are there in this city?  Explain your logic/assumptions.”
answer : Explain the logic based on the population of the city, average count of cuts people have per year, number of cuts one barber can do per year, and frankincense how many that implies there must be. ( for example, 2 million people, each get an average of 4 cuts per year, which results in 8 million cuts per year. Each barber works an average of 8 hours per sidereal day, time five days per week, times fifty weeks per year equals 2,000 hours of cutting time per year. Each haircut takes 1 hour. therefore, 8 million haircuts, equal 8 million hours, divided by 2,000 hours per barber requires 4,000 barbers in the city. )
question # 2
“In the middle of a pond is a single lily pad; the lily pad doubles in size every day and the pond is completely covered on the last day of the month (30 days). How long does it take for the pond to be half covered?”
answer : 29 days, because if it doubles in size each day it besides halves each day. frankincense at 29 days is half wax in decree to be completely fully in 30 days .
question # 3
“A windowless room contains three identical light bulbs. Each light is connected to one of three switches outside of the room. Each bulb is switched off at present. You are outside the room, and the door is closed. You have one, and only one, opportunity to flip any of the external switches. After this, you can go into the room and look at the lights, but you may not touch the switches again. How can you tell which switch goes to which light?”
answer : substitution on switches 1 & 2, wait a moment and switch off number 2. Enter the room. Whichever bulb is on is wired to switch 1, whichever is off and hot is wired to switch number 2, and the third is wired to switch 3 .

Technical Knowledge Questions (15-20 minutes):

This section of the investment bank interview questions provides insight into the candidate ’ s technical cognition of finance, account, evaluation, and fiscal model .
motion # 1
“Please walk me through the three financial statements.”
The balance sheet is a snapshot at a point in time. On the top half you have the company ’ mho Assets and on the buttocks one-half its Liabilities and Shareholders ’ Equity ( or Net Worth ). The assets and liabilities are typically listed in order of liquidity and separated between stream and non-current.
The income statement covers a period of time, such as a quarter or class. It illustrates the profitableness of the ship’s company from an accounting ( accumulation and matching ) perspective. It starts with the tax income argumentation and after deducting expenses derives net income.
The cash run statement has three sections : cash from operations, cash used in investing, and cash from finance. It can be calculated using the calculate approach or the reconciliation approach. It “ undo ” all of the accounting principles and shows the cash flows of the business .
question # 2
“How would you value a company?”
There are three common evaluation methods used in IB :
1 ) The multiples approach ( besides called “ comps ” ), in which you multiply the earnings of a company by the P/E proportion of the industry in which it competes ( and other ratios ).
2 ) Transactions approach path ( besides called “ precedents ” ), where you compare the company to other companies that have recently sold/been acquired in that industry.
3 ) The Discounted Cash Flow overture, in which you discount the values of future cash flows back to the present .
doubt # 3
“You have the opportunity to purchase a series of future cash flows that are \$200 in perpetuity. The total cost of capital is 10%, how much are you prepared to pay today?”
suffice : [ note : Value = Cash Flow / WACC ].
\$ 2,000, because : \$ 200 / 10 % = \$ 2,000 ( i.e. 10x )
wonder # 4
“When should a company consider issuing debt instead of equity?”
answer : There are many reasons to issue debt rather of equity : ( 1 ) It is a less bad and cheaper generator of financing compared to issuing equity ; ( 2 ) If the company has taxable income, issuing debt provides the benefit of tax shields ; ( 3 ) If the fast has immediately firm cash flows and is able to make their interest payments ; ( 4 ) higher fiscal leverage helps maximize the return on endow capital ; ( 5 ) when issuing debt yields a lower slant cost of capital ( WACC ) than issuing fairness .
doubt # 5
“List the main components of WACC (i.e. Weighted Average Cost of Capital).”
answer : debt, Equity, Tax, Beta. See more on WACC here .
doubt # 6
“How do you calculate the WACC?”
answer : This is calculated by taking the proportion of debt to full capital, times the debt rate, times one minus the effective tax rate, plus the proportion of equity to capital, times the compulsory return on fairness .
question # 7
“Which is cheaper debt or equity? Why?”
solution : debt because : It is paid before equity / may have security. Ranks ahead on extermination

wonder # 8
“What is the average Price/Earnings PE ratio for the S&P 500 Index?”
solution : About 15-20 times, the PE proportion varies by diligence and time period in the cycle .
wonder # 9
“A company has learned that due to a new accounting rule, it can start capitalizing R&D costs instead of expensing them.“
Part a ) What is the impact on EBITDA ?
Part bacillus ) What is the impact on web Income ?
Part cytosine ) What is the impact on cash flow ?
Part five hundred ) What is the shock on valuation ?
Part a ) ebitda increases by sum capitalized ;
Part bacillus ) net income increases, the measure depends on depreciation and tax discussion ;
Part c ) Cash menstruation is about constant – however, cash taxes may be different due to depreciation rate
Part d ) evaluation is constant – except for cash taxes impact/timing on NPV
doubt # 10
“What happens to Earnings Per Share (EPS) if a company decides to issue debt to buy back shares?”

• Issuance of debt increases after-tax interest expense which lowers EPS.
• Repurchase of shares reduces the number of shares outstanding which increases EPS.
• Whether it increases or decreases EPS depends on the net impact of the above two points.

question # 11
“What makes a good financial model?”
Building a fiscal model takes a bunch of practice to be very dear at it. The best fiscal models are distinctly laid out, identify all the key drivers of the business, are accurate and accurate so far not excessively complicated, can handle active scenarios, and have built-in sensitivity psychoanalysis and error check .

Behavioral Questions (10 minutes):

This section of the investment bank interview questions focuses on the campaigner ’ mho soft skills and personality fit in the firm .
Pick three or four of the adopt questions :
“Why do you want to work in investment banking? Or at this bank?” [ this interrogate is so common we made a disjoined page with a full answer to it here ] .
“How do you deal with risk in your personal life?”
“Give a time where you had multiple options and explain how you arrived at your decision.”
“If you could live in any city in the world, and money was not an issue, where would you live and why?”
“What is one of your biggest weaknesses and how do you deal with it?”
“What is one thing you believe to be true, but that most people would disagree with you on?”
“Which is more important in business – IQ or EQ?”
“Are you smart?”
Answers : Grade the interviewee based on how well they expand on their ideas. There are no good or wrong answers. The key is to determine the adopt : do they demonstrate adulthood, are they comfortable with ambiguity, can they work as a team, do they have aroused intelligence, would they fit well in our culture, etc. See more behavioral interview questions .