Analyst/Associate Investment Banking Interview Questions: Checklist For Interviewer

10/2/2019 Investment Banking Interview Questions - Tips to Pass an IB Interview
Analyst/Associate Investment
Banking Interview Questions
This is based on a real form used at bulge bracket banks for their
investment banking interview questions in the hiring process.
Total Interview time: approx. 45 minutes.
Checklist for Interviewer:

Welcome, introduce yourself & your position and thank
interviewee for their time & 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 candidate about the work
experience that is noted on their resume.
e.g., “Please walk me through your resume in 5 minutes or

less.”


Problem Solving Questions (5 minutes):
https://corporatefinanceinstitute.com/resources/careers/interviews/real-investment-banking-interview-questions-form/ 1/9
This section of the investment banking interview questions provides

insight into the candidate’s critical thinking skills.
Question #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 number of cuts people have per year, number of cuts
one barber can do per year, and thus how many that implies
there must be. (e.g., 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 day, times ve days
per week, times fty weeks per year equals 2,000 hours of
cutting time per year. Each haircut takes 1 hour. Thus, 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 also

halves each day. Thus at 29 days is half full in order to be
completely full 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 o at present. You are outside the
room, and the door is closed. You have one, and only one,
opportunity to ip 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: Switch on switches 1 & 2, wait a moment and switch

o number 2. Enter the room. Whichever bulb is on is wired to 
switch 1, whichever is o 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 banking interview questions provides
insight into the candidate’s technical knowledge of nance, accounting,
valuation, and nancial modeling.
Question #1
“Please walk me through the three nancial statements.”
Answer:
The balance sheet is a snapshot at a point in time. On the top
half you have the company’s Assets and on the bottom half its
Liabilities and Shareholders’ Equity (or Net Worth). The assets
and liabilities are typically listed in order of liquidity and
separated between current and non-current.
The income statement covers a period of time, such as a
quarter or year. It illustrates the pro tability of the company
from an accounting (accrual and matching) perspective. It
starts with the revenue line and after deducting expenses
derives net income.
The cash ow statement has three sections: cash from
operations, cash used in investing, and cash from nancing. It
can be calculated using the direct approach or the
reconciliation approach. It “undoes” all of the accounting
principles and shows the cash ows of the business.
More info: CFI courses on nancial statements
Question #2
“How would you value a company?”
Answer:
There are three common valuation methods used in IB:
1) The multiples approach (also called “comps”), in which you
multiply the earnings of a company by the P/E ratio of the
industry in which it competes (and other ratios). 
2) Transactions approach (also called “precedents”), where you
compare the company to other companies that have recently
sold/been acquired in that industry.

3) The Discounted Cash Flow approach, in which you discount
the values of future cash ows back to the present.
Question #3
“You have the opportunity to purchase a series of future cash
ows that are $200 in perpetuity. The total cost of capital is
10%, how much are you prepared to pay today?”
Answer: [Note: Value = Cash Flow / WACC].

$2,000, because: $200 / 10% = $2,000 (i.e. 10x)
Question #4
“When should a company consider issuing debt instead of
equity?”
Answer: There are many reasons to issue debt instead of

equity: (1) It is a less risky and cheaper source of nancing
compared to issuing equity; (2) If the company has taxable
income, issuing debt provides the bene t of tax shields; (3) If
the rm has immediately steady cash ows and is able to make
their interest payments; (4) higher nancial leverage helps
maximize the return on invested capital; (5) when issuing debt
yields a lower weighted cost of capital (WACC) than issuing
equity.
Question #5
“List the main components of WACC (i.e. Weighted Average
Cost of Capital).”
Answer: Debt, Equity, Tax, Beta. See more on WACC here.
Question #6
“How do you calculate the WACC?”
Answer: This is calculated by taking the proportion of debt to

total capital, times the debt rate, times one minus the e ective
tax rate, plus the proportion of equity to capital, times the
required return on equity.
Question #7 
“Which is cheaper debt or equity? Why?”
Answer: Debt because: It is paid before equity / may have

security. Ranks ahead on liquidation
Question #8
“What is the average Price/Earnings PE ratio for the S&P 500
Index?”
Answer: About 15-20 times, the PE ratio varies by industry and

period in the cycle.
Question #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 b) What is the impact on Net Income?
Part c) What is the impact on cash ow?
Part d) What is the impact on valuation?
Answer:
Part a) EBITDA increases by amount capitalized;
Part b) Net Income increases, amount depends on depreciation
and tax treatment;
Part c) Cash ow is almost constant – however, cash taxes may
be di erent due to depreciation rate
Part d) Valuation is constant – except for cash taxes
impact/timing on NPV
Question #10
“What happens to Earnings Per Share (EPS) if a company
decides to issue debt to buy back shares?”
Answer:
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 nancial model?”
Answer:
Building a nancial model takes a lot of practices to be really
good at it. The best nancial models are clearly laid out,
identify all the key drivers of the business, are accurate and
precise yet not overly complicated, can handle dynamic
scenarios, and have built-in sensitivity analysis and error
checking.
Behavioral Questions (10

minutes):
This section of the investment banking interview questions focuses on
the candidate’s soft skills and personality t in the rm.
Pick three or four of the following questions:
“Why do you want to work in investment banking? Or at this

bank?” [this question is so common we made a separate 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?”
“What does leadership mean to you? Can you provide some

examples of good and bad leadership?”
“Are you smart?”


Answers: Grade the interviewee based on how well they

expand on their ideas. There are no right or wrong answers.
The key is to determine the following: do they demonstrate
maturity, are they comfortable with ambiguity, can they work
as a team, do they have emotional intelligence, would they t
well in our culture, etc. See more behavioral interview
questions.
Questions for Interviewer (5

minutes):
Ask the candidate, Do you have any questions for the interviewer?
About IB, about the rm, about the process?
Next Steps:
This is the end of the investment banking interview questions.
Advise the candidate that HR will be in contact shortly with an update

(within the next couple of hours/days)
Up next: read our investment banking associate interview

questions.
Additional interview resources

Thanks for reading CFI’s guide to investment banking interview
questions. To make sure you’re fully prepared, please check out the
additional resources below:
Equity research interview questions

Walk me through a DCF
Why investment banking?
How are the 3 statements linked?
Financial Analyst Certi cation 
Become a certi ed Financial Modeling and Valuation Analyst (FMVA)® by

completing CFI’s online nancial modeling classes and training program!

Analyst/Associate Investment Banking Interview Questions: Checklist For Interviewer

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Analyst/Associate Investment Banking Interview Questions: Checklist For Interviewer

Uploaded by

Copyright:

Available Formats

10/2/2019 Investment Banking Interview Questions - Tips to Pass an IB Interview

Total Interview time: approx. 45 minutes.

Checklist for Interviewer:

Bank/Industry Overview (0-5 minutes):

Employment History / Resume (5 minutes):

e.g., “Please walk me through your resume in 5 minutes or

This section of the investment banking interview questions provides

Answer: Explain the logic based on the population of the city,

Answer: 29 days because, if it doubles in size each day it also

Answer: Switch on switches 1 & 2, wait a moment and switch

and the third is wired to switch 3.

Technical Knowledge Questions (15 – 20

sold/been acquired in that industry.

Answer: [Note: Value = Cash Flow / WACC].

Answer: There are many reasons to issue debt instead of

Answer: Debt, Equity, Tax, Beta. See more on WACC here.

Answer: This is calculated by taking the proportion of debt to

Answer: Debt because: It is paid before equity / may have

Answer: About 15-20 times, the PE ratio varies by industry and

Part a) What is the impact on EBITDA?

Behavioral Questions (10

Pick three or four of the following questions:

“Why do you want to work in investment banking? Or at this

“How do you deal with risk in your personal life?”

“What is one of your biggest weaknesses and how do you deal

“Which is more important in business – IQ or EQ?”

“What does leadership mean to you? Can you provide some

“Are you smart?”

Answers: Grade the interviewee based on how well they

Questions for Interviewer (5

Advise the candidate that HR will be in contact shortly with an update

Up next: read our investment banking associate interview

Additional interview resources

Equity research interview questions

Financial Analyst Certi cation 

Become a certi ed Financial Modeling and Valuation Analyst (FMVA)® by

You might also like