Investment banking technical questions are separated into 7 different categories from; Finance, Accounting, Valuations, Mergers & Acquisition, LBO, Economics and Brain teasers. Almost 70% of first round interview questions are based on technical knowledge. Regardless of your background, you are expected to answer these questions correctly to demonstrate your ability and desire for the role. The hardest part about investment banking interviews are technical questions but once you manage to pass them then its smooth sailing from then on.
In this article and associated videos, we are going to take look at some the top 33 common technical investment banking interview question which you should prepare for your first-round interviews. These are questions you can expect for analyst, associate and summer internship roles.
Finance questions
In this section you will be tested on various aspects of corporate finance theories, basic questions will surround the role of financial markets and specific financial instrument to common theories such as CAPM, WACC, IRR, P/E… etc. If the candidate can answer basic questions then we can move on to more intermediate questions on the topic of enterprise and equity valuation and more importantly capital structure.
1) Why is money today worth more than money tomorrow?
2) Tell me about a typical firms’ capital structure?
3) If interest rate rises what will happen to the price of a bond?
4) What are some advantages and disadvantages of issuing stock?
5) What is a discount rate and how do you estimate it?
6) Why is the cost of capital U shaped?
7) How can two companies with identical earnings in the same industry have different P/E?
8) How do you get from Equity value to Enterprise value?
Accounting questions
I’ve said this once and I’ll say it again, you don’t have to be an accountant to be an investment banker but you will need to know how to read and interpret the 3 financial statements fluently in order to perform financial analysis and build financial models. So, it’s extremely important that you know how to answer accounting questions regardless if you are from an accounting background or not. Basic questions here can be anywhere from identifying specific line items to explaining the impact on the 3 financial statements when a line item changes.
Intermediate questions will include; the effects of leases, write downs, tax implications, financial statement adjustments and specific scenario-based questions. Advance questions here will include multi scenario events and walking through the adjustments year by year.
9) Walk me through a $10 increase in depreciation on the three financial statement?
10) If a company wishes to an accelerated depression method, so taking $20 per year instead of the usual $10… walk me through the adjustment on the financial statements?
11) What is the impact of an asset write down on the financial statement?
12) Where would you place XXX on the financial statement?
13) Give me some examples of non-reoccurring items on the balance sheet?
14) How does a Defer tax liability or asset arise?
Valuation Questions
Valuation and financial modelling will form a large part of what an analyst and associate is expected to do. You can expect a lot of the technical question will be around this topic and the best way to prepare for this is to learn how to perform financial models. Basic questions here would be surrounding the 3 main valuation methodology. You will have to know when and why a specific method is used, the pros and cons of each method, the specific technical requirements of each methods e.g. levered and unlevered cashflow… etc
15) Walk me through a DCF?
16) Why do we use unlevered free cashflow?
17) How do you lever and un lever beta?
18) Give me the formula for levering and unlevering beta?
19) Why do we calendarize financials and why is this important and give me an example for the DCF?
20) What are the advantages and disadvantages of the three main valuation method?
M&A questions
Basic questions will revolve around the topic of synergy, merger motives and walking your interviewer through an M&A model. Intermediate questions will be around specific balance sheet line item and the adjustments when building an M&A model. You should also expect industry specific questions depending if you are applying for a specific industry group.
21) Why might one company want to buy another?
22) Walk me through the role of an IB on the sell side of an M&A deal?
23) What are some of the pros vs cons of a cash vs asset purchase?
24) What are some defence tactic a company can employ to detract hostile takeovers?
25) What is the difference between a strategic and a financial buyer?
LBO Questions
Given that a large proportion of investment banking clients are Private Equity firms, it would make sense for junior bankers to understand how the other side thinks. As a basic pre-requisite, you will need to know how to build a basic LBO model and understand what makes an attractive LBO candidate and how returns are calculated for LBO deals i.e. MoM and IRR. Intermediate questions will revolve around scenario questions, capital structure and testing your knowledge of debt instrument e.g. secure, unsecure, covenants, mezzanine debt, PIK… etc. It is very rare that you will get advance questions unless you already have some experience in working within LBO deals.
26) Walk me through an LBO model?
27) How might we increase the IRR or MoM in an LBO deal?
28) what are some due diligence consideration when structuring a deal?
Economics & Current affairs
This is a one area which a lot of candidate underestimate and something which can easily be fixed. You should ideally have read this week’s Wall Street journal, cover of the economist and absorb everything on Bloomberg online before your interview.
29) Tell me how does Tump administration new corporate tax cut affect P/E multiples?
30) Should central banks hike rates and why?
BONUS Brain teasers
Some candidates love these questions other are mortified by the very mention of them. Simply put brain teasers are just a way to see how the candidate think under pressure, the good news is the questions haven’t changed much and everyone pretty much asks similar questions. Check out the interview guide for a list of the most common questions and just memorize the answers.
31) What is the angle between the hour-hand and minute hand of a clock at 3:15?
32) What is the sum of numbers from 1 to 100?
33) If I give you a three gallon jug and a five gallon jug, how do you use them to get four gallons of water?
Common issues
- how many can you get wrong and still pass? – Maybe 1 or 2 questions, anything more then it means you are not prepared.
- What do you do when you don’t know the answer? – If you know half of the answer then just the half that you do know and ask for the rest. Make sure you ask because you could get asked the same question again in a different interview. If you completely have no idea, then have an intelligent guess.
- Who will get the harder questions? – Full time analyst and associate roles will get the brunt of technical. Associate interns will also be tested pretty hard and summer analyst interns will usually get basic to intermediate questions.
- How much of technical do you really need to know to pass your interviews? – This is like asking how much of the syllabus do you really need to know to pass your exam?
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