Want an I-Banking Job? Know the Answers to These Questions

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While working at an investment bank may no longer be as prestigious and high-paying as it was years ago, the competition for open positions remains fierce, for both internships and full-time positions. To whittle down the select few who receive offers, investment banks are known for asking some of the most difficult interview questions you’ll hear.

Below is a sampling of some of the more interesting questions recently asked of M.B.A. graduates and prospective interns from New York University’s Leonard N. Stern School of Business. Test your skills and post your answers in the comment section.

1. Imagine that you cover an industrials company with $1 billion in revenue. News breaks that it is going to acquire a private company – all you know about the target is that it has roughly $500 million in revenue. Your phones start to ring immediately. On one line is your trader and on the other is your top institutional customer. First: Which phone do you answer and why. Second: How do you analyze the situation and what do you talk about?

2. Would a capital-intensive company look more or less expensive than a non-capital intensive company in terms of the EV/EBITDA ratio?

3, How do changes in interest rates impact duration?

4. How do you think you'll handle the hours? Tell me about a time you've worked overtime?

5. If a company increases depreciation by $10, tell me how all three financial statements will be impacted?

6. If I were to ask your parents what they thought about you going into banking, what would they say?

7. On a football field, how are the different valuation ranges going to show up?

8. In a regular market, what is more expensive debt or equity? Explain your thought process.

9. Why is free cash flow called "free" cash flow? What does "free" signify?

10. What does F9 do in Excel?

11. What is the weakness of private equity valuation?

12, In a declining interest rate environment would you rather hold interest-only or principal-only?

13. If I am looking at a company in industry X and we want to determine how much leverage the company can withstand (to pay the shareholders a dividend) how would you determine the maximum amount of leverage for this corporation?

14. If you had an option to purchase an asset that was going to be worth either $100 or -$100 with equal probability (ignoring time to maturity and with a 0% interest rate) how much would you pay for that asset?

15. If you had a die with six sides and the strike price is three, how much would you pay for the option?

16. If the yield for a one-year bond is 10% and the yield for a two-year bond is 15%, what is the forward rate for the second year?

17. Does company-specific risk impact Beta? Why or why not?

For more brain teasers, check out our previous post on interview questions posed by consulting companies, as well another concentrating on asset managers, commercial banks, private wealth managers and other finance firms.