Common Investment Banking Interview Questions (With Answers)

By Indeed Editorial Team

Updated 21 October 2022

Published 30 November 2021

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

Investment bankers provide a range of financial services to institutions, investors and stakeholders, such as financial advice and guidance on investments. Anyone hoping to enter the industry can expect a tough interview process that includes a variety of investment banking interview questions. The best way that you can prepare for these questions is to know what your interviewer might ask you. In this article, we outline basic and advanced investment banking interview questions and sample answers to give you the best chance of securing the role.

Related: How to Write an Investment Banker Cover Letter

General investment banker interview questions

Recruiters tend to have a number of general investment banking interview questions that they use to get to know you better. These questions often relate to your interest in the role, ideas for the future and character. The most common general questions that you might get during the interview include:

  • What interested you about the role that you're applying for?

  • Why do you think you are a good fit for this bank?

  • What are your hobbies and interests outside of work?

  • Is this a permanent career for you?

  • Do you have a career path or a plan for the next five years?

  • What are you passionate about?

  • What are your strengths and weaknesses?

  • Where did you hear about us?

Remember to tailor your answers to the company, its core values and the role that you're applying for. It's a good idea to review the company policy to align your answers with their ethos.

Related: 10 Effective Words to Use in an Interview

Questions about your experience and background in investment banking

Interviewers are going to want to hear about your experience in the industry and your background to see if you're a good fit for the role. This might include questions about your qualifications or any experience you have working in investment banking. Again, it's useful to look at what the role is asking for in a candidate and try to align your experience with that. Common questions include:

  • What experience do you have in investment banking?

  • Have you worked at an investment banking firm before?

  • What difficulties have you overcome in your previous role?

  • Why is investment banking the right career for you?

  • Do you work well under pressure?

  • Can you tell me about a time that you put in extra effort for a client?

  • Can you talk about one of your biggest successes in banking?

  • What makes you a successful investment banker?

  • How do you think your previous experience in investment banking has prepared you for this role?

Related: How to Sell Yourself in an Interview

In-depth questions about investment banking

Investment banking is a technical field that demands a high level of competence in financial services. Interviewers are going to assess your skills during the interview, so be ready to speak at length about some of the intricacies of financial banking. In-depth questions you can expect in your interview include:

  • Which is higher, the cost of debt or the cost of equity?

  • What benefits are there to company mergers?

  • Why do companies benefit from issuing debt instead of equity?

  • What is beta in relation to investment banking?

  • What do you find in a good financial model for a business?

  • What calculations would you use to find out the cost of equity?

Related: What Are Competency-Based Interview Questions?

Investment banker interview questions with sample answers

Having a general idea of what questions the interviewer may ask gives you the chance to prepare a response beforehand. The ability to speak confidently about a subject looks great to potential employers, especially when your responses incorporate specific experiences from your own career. Even if the questions that you prepared for don't come up, you can often repurpose the answers you practised to respond quickly. Here is a variety of investment banker interview questions with sample answers:

What methods do investment bankers use to value an organisation?

Valuing companies is a large part of an investment banker's duties, so interviewers are going to be looking to assess your competency in this regard. It's a technical question with a technical answer, so be sure to revise the basic principles of investment banking before the interview.

Example: 'You can value organisations by using intrinsic or relative valuations. Intrinsic, also known as discounted cash flow, valuations let you assess the expected returns on investments. Multiples are more flexible and provide a more subjective picture of an organisation's overall value. These calculations are going to vary depending on the overall rate of growth within an organisation.'

Related: Investment banking Q&A: how do investment banks make money?

What skills can you bring from previous roles that can help you in this investment banking position?

There are lots of skills that you can draw on from your previous experience, depending on where you have worked. Many professionals in investment banking come from the world of finance or mathematics, both of which have transferrable skills that you can leverage in the interview.

Example: 'My background in mathematics has given me a lot of confidence in calculations and data processing. I feel that my skills can help address the needs of our clients by providing solid calculations that they can use to improve their investments. In my previous role, I was responsible for managing others and proofreading calculations, so I feel that I can help co-workers while ensuring our work is accurate and useful.'

Are you able to explain the difference between investment and commercial banking?

This is a good general question for interviewers of investment bankers, as it helps them determine the level of understanding within the financial sector. This is a good question to receive because all it takes to answer it well is a textbook definition.

Example: 'A commercial bank works with individuals and smaller companies to provide financial advice, loans and financial transactions. Investment banks act as a buffer between organisations and investors while also providing advice and guidance on investments.'

Related: Comparing commercial banking vs investment banking

What are the three financial statements?

The three financial statements are key financial concepts. Once again, this is another textbook response that is easy to answer. Be sure to go over each statement and show your interviewer that you know what you are talking about.

Example: 'The three financial statements are the income statement, balance sheet and cash flow statement. Income statements determine quarterly or annual financial performance and show the overall profitability of a company. Balance sheets offer a glimpse of what the health and financial status of a company are by breaking assets and liabilities into the top section of the sheet, with equities found in the lower half. Finally, cash flow statements show the amount of cash that is flowing in and out of business through investments, financing and transactions.'

What is the correct discount rate to apply when performing an unlevered DCF analysis?

Specific questions like this test your reasoning skills and technical knowledge. Rather than an answer you can rehearse, it's crucial that you understand the terms and reasoning behind the answer you give. Interviewers are likely to notice the fluency of your response.

Example: 'Free cash flows in unlevered DCF analysis are also known as pre-debt, so the cost of these cash flows relates to lenders and equity providers. As a result of this, the discount rate is the weighted average cost of capital to everyone that has provided capital in one way or another. The cost of equity can be difficult to value as it's something that can be tracked in the market as the yield on debt with equivalent risk. To estimate the cost of equity, you use the capital asset pricing model. This links expected returns of equity to the market.'

Which is higher, the cost of debt or the cost of equity?

With simple questions like these, it can be tempting to provide a short, immediate response. Instead, explain your answer and use the opportunity to show your peripheral investment banking knowledge.

Example: 'The cost of equity is always higher than the cost of debt due to the associated cost of borrowing being tax-deductible. This creates a tax shield that lowers the cost of debt. Moreover, equity is usually higher because equity investors offer no guarantees of fixed payments.'

Related: Understanding the cost of debt (Tips on how to calculate it)

What is the correct numerator for a revenue multiple?

This is another question with the potential for a short answer. Use it to demonstrate your awareness of other investment banking principles and engage with the interviewer.

Example: 'The correct numerator is the enterprise value. The equity value is equal to enterprise value minus net debt. Things like revenue multiples all have their own enterprise value as numerators because the denominator is a pre-debt measurement that shows profitability.'

What is the best way to value a company with historically negative cash flow?

This question assesses how many investment banking methods you can leverage. It rules out all but one method, so unless you know about DCF valuation, the question is unanswerable. Questions like this are difficult, but being able to provide an answer immediately demonstrates your competency.

Example: 'Negative profitability would make most methods of analysis useless with the exception of a DCF valuation. So, using a DCF valuation is the only realistic method to value a company with negative cash flow.'

Please note that none of the companies, institutions or organisations mentioned in this article are affiliated with Indeed. The model shown is for illustration purposes only, and may require additional formatting to meet accepted standards.

Related:

  • What does a corporate investment banker do? (Main duties)

  • How Much Does an Investment Banker Make?


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