Investment Banking Questions and Answers - English

General Questions

Q: What is investment banking? A: Investment banking is a segment of banking that helps individuals, corporations, and governments raise capital by underwriting or acting as the client's agent in the issuance of securities. It also provides advisory services for mergers and acquisitions (M&A).

Q: What are the main activities of an investment bank? A: The main activities include:

Raising capital through debt and equity.

Underwriting new debt and equity securities for all types of corporations.

Assisting in the sale of securities.

Mergers and acquisitions advisory.

Market making and trading of derivatives and equity securities.

Research.

Asset management.

Technical Questions

Q: What is a discounted cash flow (DCF) analysis? A: A DCF analysis is a valuation method used to estimate the value of an investment based on its expected future cash flows. The analysis involves forecasting the future cash flows and discounting them back to their present value using a discount rate, typically the weighted average cost of capital (WACC).

Q: How do you calculate the WACC? A: The Weighted Average Cost of Capital (WACC) is calculated using the formula:

where:

E = Market value of equity

V = Total market value of equity and debt

Re = Cost of equity

D = Market value of debt

Rd = Cost of debt

Tc = Corporate tax rate

Q: What are the main valuation methods used in investment banking?

A: The main valuation methods include:

Discounted Cash Flow (DCF) Analysis

Comparable Company Analysis (Comps)

Precedent Transactions Analysis (M&A Comps)

Leveraged Buyout (LBO) Analysis

Behavioural Questions

Q: Why do you want to work in investment banking?

A: Answers will vary, but a good response might include:

Passion for finance and interest in the markets.

Desire to work in a fast-paced and challenging environment.

Interest in helping companies grow and succeed.

Appreciation for the analytical and strategic nature of the work.

Q: Describe a time when you worked on a team project.

A: Provide a specific example that highlights your ability to collaborate, communicate, and contribute to a team's success. Focus on your role, the challenges faced, and the outcome of the project.

Industry-Specific Questions

Q: What is an IPO and why do companies go public?

A: An Initial Public Offering (IPO) is the process through which a private company offers shares to the public for the first time. Companies go public to raise capital, increase liquidity for existing shareholders, attract and retain talent with stock-based compensation, and gain prestige and visibility.

Q: What are some recent trends in the investment banking industry?

A: Recent trends include:

Increased focus on sustainability and ESG (Environmental, Social, and Governance) investing.

Growth in technology and fintech sectors.

Rise of SPACs (Special Purpose Acquisition Companies).

Consolidation in the industry through mergers and acquisitions.