Banks are not in recruiting season (may be an off-cycle interview or two), which makes it the best time to get ahead of the curve and practice technical interview questions. The week before the interview is too late, as no one can learn corporate finance over 5 days.
Almost all junior bankers who are inundated with coffee chat requests have been adopting a strategy of asking technical questions during coffee.
This Week’s Questions
- Walk through $100 of 8% PIK notes for the three statements (Investment Banking)
- What are the drivers of Black-Scholes? (Sales & Trading)
- A bear walks north one mile west one mile and south one mile and ends up in the same place. Where is the bear? (Brain Teaser)
- Why would you issue preferred shares over debt? (Investment Banking/ECM/DCM)
- What is a convertible bond? Walk through the three statements and anything else that would be of interest.
Why is debt cheaper than equity?
Debt is cheaper than equity because it ranks ahead of equity in the capital structure. This means that the risk of holding debt is less than the risk of holding equity, so the return on equity must be higher than the return on debt for people to hold equity. Additionally, interest payments on debt are tax-deductible in most jurisdictions, which makes the effective cost of debt lower.
What is a simple option strategy if you expect a swing in price but are not sure on direction?
A straddle (buying a put and call with the same strike or exercise price and expiration date) is best in this situation. This question is somewhat misleading as an investor would only enter into this straddle if they felt that the implied change in price would be much larger than the premiums paid, so if the swing was not large enough this may not be a good strategy.
What are non-farm payrolls?
Non-farm is one of the most important days in the economic calendar and refers to all jobs excluding farm workers, sole proprietorships, private household workers, and military and intelligence employees. The above items are stripped out to give a gauge of the economy’s health.
There is a magical waffle in a storage locker. Every minute, each waffle undergoes mitosis and turns into two waffles. At the end of an hour, the storage locker is full of waffles. At what minute is the locker 25% full?
The 58th minute. At the 59th minute it is 50% full, as it is ½ of 100%. At the 58th minute it is ½ of the 59th minute’s waffle content.
Nancy is in a room and $1 million worth of 99.9% pure gold appears. In order for her to keep the gold, she needs to take all of it out of the room at once. How does she do that?
She will just walk out of the room with the gold. The candidate will need to know the day’s gold price per ounce, but assuming it continues to be range bound between US$1,200 and US$1,400, and there are 16 ounces in a pound this is around 50 lbs.