Investment Management Interview Tips Potential Interview Questions

General Financial knowledge questions 1. Name 3 things you read in the paper today and tell me why they are important to the markets / What was the headline of the FT / WSJ today? 2. If I gave you 1 million dollars, how would you invest it? 3. Where is the economy going? Why? 4. How do you value a company? 5. What ratios do you use when valuing a company? 6. When you look at a company's financials, what do you look at first, second, third and why? 7. Where are the S&P 500, DJIA, and NASDAQ? What are the percent increase/decrease YTD? Last 12 months. Last 3 years. 8. What is the price of oil, natural gas or gold? 9. Where are the following currencies trading? Euro, Brit. Sterling, Yen. 10. What is the square root of .1 / 0.7% of 70 / square root of 255 / what is 13/16? 11. What is the yield curve? 12. How do you think the credit crisis happened? 13. What do you think are some good investments in an economic downturn? 14. You flip a coin 10 times. What is the probability of only 3 heads occurring? What is the probability of 3 heads occurring in a row? 15. You have 8 balls that look identical. 7 are identical in weight 1 is different (could be heavier or lighter). You have a balance scale. How can you weigh them to figure out the odd one, using the scale the least number of times? 16. If a cleaner has to clean a tennis court after every game, how many times will he have to clean it in a French Open tournament assuming there are 256 players? 17. What does it take to be a good poker player? - To be able to effectively assess risks and returns of different assets and strategies - To execute the strategies Equity Research questions (Some are quite similar to Investment Management questions) 18. What stock would you recommend to buy today? 19. How to go about analysing a company? 20. Tell me about a recommendation that you made that went really well and one that went badly wrong? 21. What is a good company vs. a good stock? 22. What do you think of the valuation of [Company name]? 23. Why do you want to work on the Buy Side rather than on the Sell Side? (and viceversa) 24. How do you calculate the ROE of a company? 25. What is the formula for WACC? 26. Do you invest personally?

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Investment Management Interview Tips

Here ae some of the questions asked: 27. What is negative convexity? 28. What is quantitative easying? 29. Discuss the effect on a bond with negative convexity under two scenarios, A) Rates go from 1% to 10% and B) Rates go from 1% to 10% and back down to 1%. What is the effect on prepayments and under which scenario will there be more prepayments? 30. Assume I have a time machine and I take you back one year, what trade would you do? - Buying or selling short stock - Sprint Nextel 1 +150%; Whirlpool +92% - Allegheny technologies incorporated -40% 31. Assume I still have the time machine and we go forward one day and China ceases to exist, what trade would you do (make your own assumptions)? 32. What is Operation Twist and why is it being implemented?

33. How do you calculate GDP? Impact of the change in oil prices on the GDP of Norway. 34. How do you explain the current crisis? Summarize the key events of the crisis. 35. What would the central banks do if there is inflation? Increase the discount rate Open market operations (sell bonds) Changes in reserve ratio requirements; When the Fed lowers the required reserve ratio money multiplier increases as well as excess reserves. These changes can lead to increase in money supply. For example, assume the entire banking system has $1000 in deposits and the required reserve ratio is 10% and banks are fully loaned up. That means the total reserve in the banking system is $100. Now suppose the Fed lowers the required reserve ratio to 8%, and hence, reduces the total required reserve to $80. With this change banks find themselves with excess reserves of $20. If banks decide to loan out the entire excess reserves the money supply can increase by as much as 20 x (1/0.08)=$250. Conversely, an increase in required reserve ratio raises the reserve ratio, lowers the money multiplier, and decreases the money supply. Lowering the required reserve ratio is expansionary monetary policy; raising the required reserve ratio is contractionary monetary policy.

36. Calculate the duration of a portfolio of bonds

Investment Management Interview Tips To estimate how sensitive a particular bonds price is to interest rate movements, the bond market uses a measure known as duration. Duration is a weighted average of the present value of a bonds cash flows, which include a series of regular coupon payments followed by a much larger payment at the end when the bond matures and the face value is repaid, as illustrated below. Duration, like the maturity of the bond, is expressed in years, but as the illustration shows, it is typically less than the maturity. Duration will be affected by the size of the regular coupon payments and the bonds face value. For a zero coupon bond, maturity and duration are equal since there are no regular coupon payments and all cash flows occur at maturity. Because of this feature, zero coupon bonds tend to provide the most price movement for a given change in interest rates, which can make zero coupon bonds attractive to investors expecting a decline in rates.
37. Impact of a call option on a portfolio of bonds. Does it increase or decrease duration?
First, note that the portfolio is changed when a short call or a long put is added to the portfolio. The sentence is extremely short-hand for, "What happens to the portfolio's duration when you change the portfolio, such as shorting a call option or longing a put option?" Callable bonds have lower durations than non-callable bonds that are similar in every other way. Putable bonds have lower durations than non-putable bonds that are similar in every other way. One way to look at it is that the options can cause the bonds to exist for shorter periods when the market interest rates change too much in one direction. Another way to look at it is when the interest rates decrease after a certain rate the callable bond will not change price as much as a non-callable bond will, and that when interest rates increase, the putable bond will not decrease in price as much as a non-putable bond will. And note that, for the most part, interest rates will go up or down with near-equal probability/severity, according to arbitrage-free assumptions. Replace "bond" with "portfolio," or assume that the original portfolio consists of one bond.

38. Calculate the change in price of a bond if interest rates change by 1% and the duration of the bond is 5% 39. Questions may be around Enterprise value e.g. if a company has an equity value of a 100, and cash of 10, what is the enterprise value.

40. What is diluted EPS?

Investment Management Interview Tips

1. So what is a stock I should buy (short) now and why? a) Choose at least 2 stocks to buy & 2 stocks to short b) KNOW these companies a. Major ratios b. Comparable companies c. The competitive landscape of the industry in which these stocks reside (basically a Porters 5 Forces exercise) d. Build your own model, including income statement, balance sheet & cashflow statement. This will FORCE you to get to really know the company, its drivers, major assumptions and greatest risks. e. Know the opinion of the stock on the Street and how your opinion either agrees or dissents with the consensus. f. The effect of macroeconomic factors on the stock & its industry. g. Major news events in the sector. 2. Common practice to evaluate P/E ratio to determine if a stock is cheap. If you had no comparable companies for a stock, how can you evaluate if a stock is cheap? The inverse of the P/E is the earnings yield of the company. You can compare the earnings yield to fixed income yields and/or dividend yields to get a feel for how cheap the stock is. So a P/E of 50 can be interpreted as an earnings yield of 2%, while 8 can be interpreted as 12.5% earnings yield. 3. How would you justify the price that XYZ paid for ABC? Do you expect XYZ to be a good investment in light of these acquisitions?

Investment Management Interview Tips This is essentially a valuation question. 4. What makes a stock a good investment? Make sure you know what the firms investment strategy is before answering this question. It's not a good idea to tell about value techniques to a firm that is growth or momentum oriented. With that said, both growth and value stocks are better investments when they have a sustainable competitive advantage. I recommend a discussion of basic M&S D30 concepts. 5. Do you invest in stocks or companies? A tricky questionbe honest and be prepared to defend your position. There is not universal agreement out there on this question. Many successful investors (including Warren) say that you are an owner in the business. But many others including Strong and American Century believe you buy stocksnot companies. Momentum shops will definitely tell you that you buy stock. Growth and value analysts and firms may say either. Firms with a short term focus will probably say you buy stock, while firms with a longer term focus will likely say you buy companies. 6. If you had to put ALL of your money in one stock and leave it there for 10 years, which stock would it be and why? This is an open invitation to give a stock pitch. I said Lucent and told them whyno call back! Good luck on this one. 7. Why do you want to work on the buyside? Why not the sell-side? 8. Why are high P/E stocks more susceptible to major declines when interest rates increase? You can go with the cheap versus expensive argument, but thats limited. A good way to explain this is growth and cash flows. High P/E stocks are high growth rate stocks. High growth rates usually mean that there are large cash flows out in the future (ignore the no income internet companies growing sales at 100%). To value the company these cash flows have to be discounted back to the present. When interest rates go up, the discount rate goes up and the future cash flows are worth less. A low P/E stock has more of its cash flows in the near term. For those of you with a fixed income background, this is identical to the logic of duration. High P/E stocks have a longer duration and thus decline in value when interest rates go up. 1. I have the balance sheets from Intel and Disney/ABC in front of me. What do you think would be some of the differences?

Investment Management Interview Tips 2. What does the cost structure like for the [INSERT ANY INDUSTRY] industry? Fixed, variable etc? What are their biggest cost components? 3. What do you think the income statement would look like for a drug company like Pfizer? What would their COGS be? How about their operating margin? 4. We want people who have a passion for investing in stocks - what have you done to demonstrate you have this? 5. What was you best investment? Why - what did you learn? 6. What was your worst investment? What did you learn? 7. If the fed hikes rates by 0.5%, what would you expect the impact to be on the market? (No right answer, but be ready to speak intelligently) 8. Think about the differences between cyclical & growth industries, and how they are affected external factors. MORE Investment Management Interview Questions:

1. What is P/E and how would you use it to compare companies? This question is designed to give an indication of your knowledge in stock evaluation. Need to be able to point out the positives and negatives of P/E. Bringing in PEG ratios is a good thing to do here, as companies cannot always be compared only on P/E. 2. For those of you looking at all at Fixed Income, where is the long bond and what is it an indication of? It's good to have an indication of some key economic data.

3. What qualities make for a good analyst? 4. What skills can you offer as an analyst? Any industry-specific ones? 5. What industry do you want to cover? Any preference for value or growth? 6. How would you analyze the industry? 7. Pitch a stock to me. - This is the Pitch Me a Stock portion of the IM interview. BEFORE walking into an IM interview you should: a) Choose at least 2 stocks to buy & 2 stocks to short b) KNOW these companies a. Major ratios b. Comparable companies c. The competitive landscape of the industry in which these stocks reside (basically a Porters 5 Forces exercise) d. Build your own model, including income statement, balance sheet & cashflow

Investment Management Interview Tips statement. This will FORCE you to get to really know the company, its drivers, major assumptions and greatest risks. e. Know the opinion of the stock on the Street and how your opinion either agrees or dissents with the consensus. f. The effect of macroeconomic factors on the stock & its industry. g. Major news events in the sector. TIP: If you pick a well-known, widely covered stock it will certainly be one on which the interviewer has some sort of opinion even if he/her does not cover the stock. While this will certainly allow for a fluid discussion, it will ensure that you have to be CONFIDENT in your knowledge of the stock. Picking an obscure stock is a way for you to show your explanatory powers and lessen the chances that the interviewer knows everything there is to know about that stock. However, this might also work against you as the interviewer might lose interest in the story. REMEMBER: They are attempting to assess: (1) How much you prepared for the interview. (2) If you can think quickly on your feet. (3) If you can communicate well and take criticism. 8. How did you arrive at your target price? 9. What is your investment philosophy? 10. Do you own/have you owned any stocks? Tell me about them. Why did you buy/sell them? 11. Did you pitch a stock to the IMC fund members? What was the outcome? 12. Why do you want to work for us? 13. Why do you want to live in the (firms location) area? What ties to you have to the area? 14. What other firms are you looking at? 15. Where do you think the market is going? Why? 16. What do you think is most important: A companys management, product, strategy, etc. ? 17. What are five questions you would ask a companys management? 18. Which would you rather have: A good company with poor management, or a poor company with good management? Why? 19. What is more important: value or growth?

40. It is common practice to evaluate P/E ratio to determine if a stock is cheap. If you had no comparable companies for a stock, how can you evaluate if a stock is cheap? 42. What makes a stock a good investment? 43. Do you invest in stocks or companies? No universal agreement. Many successful investors say that you are an owner in the business. Many others believe you buy stocksnot companies. Momentum shops will definitely tell you that you buy stock. Growth and value analysts and firms may say either. Firms with a short term focus will probably say you buy stock, while firms

Investment Management Interview Tips with a longer term focus will likely say you buy companies. 44. If you had to put ALL of your money in one stock and leave it there for 10 years, which stock would it be and why? 45. Why do you want to work on the buy-side? Why not the sell-side? 46. Why are high P/E stocks more susceptible to major declines when interest rates increase? High P/E stocks are high growth rate stocks. High growth rates usually mean that there are large cash inflows in the future, which now have to be discounted at a higher rate. 47. We want people who have a passion for investing in stocks what have you done to demonstrate you have this? 48. What was your best investment? Why what did you learn? 49. What was your worst investment? What did you learn? 50. If the fed hikes rates by 0.5%, what would you expect the impact to be on the market? 51. Difference between cyclical and growth industries, and how they are affected by external factors. 52. Where do you see the market in 5-10 years and what leads you to believe so? 53. What is P/E and how would you use it to compare companies? 54. Where is the NASDAQ, and what has it done over the last year? 55. Where is the Dow, and what has it done over the last year? 56. Where is the S&P 500, and what has it done over the last year? 57. Where is the Russell 2000, and what has it done over the last year? 58. Where is the dollar vs. the yen? 59. Where is the dollar vs. the euro? 60. What is the overnight rate? 61. What is the 10 year T-Note rate? 62. What is the price of gold? 63. Common practice to evaluate P/E ratio to determine if a stock is cheap. If you had no comparable companies for a stock, how can you evaluate if a stock is cheap? The inverse of the P/E is the earnings yield of the company. You can compare the earnings yield to fixed income yields and/or dividend yields to get a feel for how cheap the stock is. So a P/E of 50 can be interpreted as an earnings yield of 2%, while 8 can be interpreted as 12.5% earnings yield. 64. How would you justify the price that XYZ paid for ABC? Do you expect XYZ to be a good investment in light of these acquisitions? This is essentially a valuation question. 65. What makes a stock a good investment? Make sure you know what the firms investment strategy is before answering this question. It's not a good idea to tell about value techniques to a firm that is growth or momentum oriented. With that said, both growth and value stocks are better investments when they have a sustainable competitive advantage. I recommend a discussion of basic M&S D30 concepts. 66. Why do you want to work on the buyside? Why not the sell-side? 67. I have the balance sheets from Intel and Disney/ABC in front of me. What do you think would be some of the differences? 68. What does the cost structure like for the [INSERT ANY INDUSTRY] industry? Fixed, variable etc? What are their biggest cost components? 69. What do you think the income statement would look like for a drug company like Pfizer? What would their COGS be? How about their operating margin? 70. What was you best investment? Why - what did you learn?

Investment Management Interview Tips 71. What was your worst investment? What did you learn? 72. For those of you that are career changers: Looking at your resume I can see that you have no market experience, what should make me believe that this is something you are seriously interested? Here they are simply looking for interest level in the markets. It is obvious if you are a career changer that you are not going to be an expert right away, but you need to show some level of interest in finance, the markets, and their firm. 73. Where do you see the market in 5 - 10 years and what leads you to believe so? There is no right or wrong answer to this question. Again, they are trying to judge you interest in the markets by your knowledge of what's been going on in the market and economy. This is a good opportunity to show that you have been keeping up to date with you WSJ.

2. What are your career goals for Investment manager? 6. What is the expression to name the market developments that denote a continuous decline in the price of securities? 7. What does oversold mean? How can this market state be achieved by an individual investment banker? 8. What are the 3 months and six month interest rates for today? 9. Explain the term: investment, risk payment & maturity duration. Kindly mention any three functions of an investment banking department. 10. Describe any three banking principles and conducts each bank employee must take care off. 16. What are top 3 skills for Investment manager? 17. How to measure job performance of your position: Investment manager? 18. What have you learned from your past jobs that related to Investment manager? When heading into an interview for an IB asset management position, you have to understand the markets and be able to prove it. How? We asked Jack Bloom, a professor at Pace Universitys school and head of its IB Career Path, which offers training and career coaching to young professionals. He says you should be ready for these questions: Where do you see the market heading? Your answer should show that you know whats going on in the world, and you understand the market. Be sure you give an answer thats backed up by reasons that are both fundamental and technical, Bloom says. Which investors do you admire?

Investment Management Interview Tips With this question, the interviewer is really asking, Are you a growth investor or a value investor? Before the interview, do your research and figure out the firms investment philosophy and choose an idol accordingly. What do you think of the latest economic data? Whether its unemployment stats or recent moves by the Fed, show that youre up on current events. Also demonstrate that you can take a macro view of the markets and economy. Explain what the latest news means for the market, whether its bonds or emerging markets, Bloom advises. What is your experience in investing? Set up at least a small personal fund and be prepared to discuss the results. Firms want people who are passionate about investing and have actually done it, Bloom says. A personal portfolio also shows you have enough confidence in your investing skills to risk your own hard-earned dough. How do you value a company? Do an analysis on a sample company and have it ready to present. Make sure you understand discounted cash flow, transaction and comparable company analysis. And dont forget to cover both long and short. You have to be able to do this on the job, even though its not taught in school, Bloom says. 1. 2. 3. 4. 5. 6. What is value investing and how is it different to growth investing? What's the formula for free cash flow? What is the difference between net income and free cash flow? Describe 3 important ratios used in value investing including their formula. What traits might an undervalued stock exhibit? What sort of information would you expect to see on a balance sheet?

7. Explain one important way in which a balance sheet is different from both an income statement and a cash flow statement. 8. 9. What is WACC? What is the capital asset pricing model?

10. What is leverage? 11. Do you know any leverage ratios? Which ones? 12. Please describe one or more studies that validate the virtues of value investing? 13. Tell me about a stock that might be undervalued in the S&P500 and why.

Investment Management Interview Tips

14. Tell me about one key proponent of value investing. - Warren Buffett, Benjamin Graham