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Investment Banking Interview Questions and Answers

Latest Investment Banking Interview Questions and Answers for Freshers

8 min read 4,654 views
Posted by Aarna Tiwari May 20, 2025

Congratulations on graduating! Now you’re embarking on your exciting career journey. If the fast-paced world of finance intrigues you, particularly the role of an investment banker, then this guide is for you. 

Cracking the investment banking interview can be daunting, but with the right preparation, you can impress your interviewers and land your dream job.

What is Investment Banking

Investment banking plays a vital role in the financial world. Investment bankers act as advisors to companies and governments, helping them raise capital through various means like mergers and acquisitions (M&A), initial public offerings (IPOs), and debt issuance. It’s a demanding yet rewarding career path offering intellectual challenges, high earning potential, and exposure to global markets.

Investment Banking Interview Questions and Answers PDF

Before diving into specifics, let’s establish a solid foundation. In simple words, investment banks act as financial intermediaries, connecting companies (issuers) with investors. They assist in various activities like:

  • Capital Raising: Helping companies raise funds through issuing stocks or bonds (equity financing & debt financing)
  • Mergers & Acquisitions (M&A): Facilitating the merging of two companies or the acquisition of one by another.
  • Financial Advisory: Providing strategic guidance on financial matters like valuations and restructuring.

Common Investment Banking Interview Questions and Answers

Here are 20 commonly asked investment banking interview questions with sample answers, tailored for freshers and entry-level candidates:

What is investment banking?

Investment banking is a division of banking that helps individuals, corporations, and governments raise capital and provide financial consultancy services. Investment banks assist with mergers and acquisitions (M&A), initial public offerings (IPOs), underwriting, and other large, complex financial transactions.

What is the difference between investment banking and commercial banking?

Investment banking focuses on capital markets activities such as underwriting, advisory services, and M&A, while commercial banking deals with deposit accounts, loans, and basic financial services for individuals and businesses.

Walk me through a typical IPO process.

  1. Company hires an investment bank.
  2. Due diligence and regulatory filings are completed.
  3. Marketing via roadshows.
  4. Price is determined.
  5. Shares are offered to the public.
  6. Trading begins on the stock exchange.

What is a DCF (Discounted Cash Flow) analysis?

A DCF is a valuation method used to estimate the value of an investment based on its expected future cash flows, discounted back to present value using the company’s cost of capital.

What is EBITDA, and why is it important?

EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. It’s a measure of a company’s operational profitability and is commonly used for comparing companies in the same industry.

What is the difference between enterprise value and equity value?

  • Enterprise Value (EV): Total value of a company, including debt and excluding cash.
  • Equity Value: Value of a company’s shares (market capitalization).
    EV = Equity Value + Debt – Cash

What are the three main financial statements?

  1. Income Statement – shows profitability over a period.
  2. Balance Sheet – shows financial position at a point in time.
  3. Cash Flow Statement – tracks cash inflows and outflows.

Why do you want to work in investment banking?

I am drawn to investment banking for its fast-paced, challenging environment, exposure to complex financial deals, and the opportunity to learn from industry experts. I enjoy problem-solving and working with data to make impactful decisions.

What is a leveraged buyout (LBO)?

An LBO is the acquisition of a company using a significant amount of borrowed money (leverage). The assets of the acquired company are often used as collateral for the loans.

What is a merger vs. an acquisition?

  • Merger: Two companies combine to form a new entity.
  • Acquisition: One company takes over another and becomes the new owner.

Explain the concept of beta in finance.

Beta measures a stock’s volatility about the market.

  • Beta = 1: Moves with the market
  • Beta > 1: More volatile than the market
  • Beta < 1: Less volatile

How would you value a company?

Common methods include:

  1. DCF Analysis
  2. Comparable Company Analysis
  3. Precedent Transactions
    Each method offers a different perspective on the company’s value.

What is accretion and dilution in M&A?

  • Accretion: The acquiring company’s EPS increases after the deal.
  • Dilution: The acquiring company’s EPS decreases post-acquisition.

What is working capital?

Working capital = Current Assets – Current Liabilities
It measures a company’s short-term liquidity and operational efficiency.

What is a pitch book in investment banking?

A pitch book is a sales document prepared by investment banks to pitch ideas, showcase financial analyses, and outline proposed strategies for clients during deals like M&As or IPOs.

What are synergies in M&A?

Synergies are cost savings or revenue enhancements that occur when two companies merge.
Types:

  • Cost Synergies – reduced overhead
  • Revenue Synergies – cross-selling opportunities

What are some key trends in investment banking today?

  • Increasing use of AI and automation
  • Focus on ESG (Environmental, Social, and Governance) investing
  • Rise in tech IPOs and SPACs
  • Regulatory reforms post-COVID

What do you understand by underwriting in investment banking?

Underwriting involves guaranteeing the sale of securities in an IPO or debt issuance. The investment bank buys the securities from the issuer and sells them to the public or institutional investors.

What is a capital structure?

Capital structure refers to how a company finances its operations using a mix of debt and equity. The optimal structure balances the cost of capital and financial risk.

How do interest rate changes affect investment banks?

Rising interest rates can increase borrowing costs and reduce deal-making activity, while also improving profit margins from fixed income products. Investment banks must manage these fluctuations strategically.

Investment Banking Interview Questions for Freshers

Here are 15 common investment banking interview questions, categorized to help you prepare:

Technical Questions (Valuation & Financial Modeling)

  1. Walk me through a DCF valuation (Discounted Cash Flow). – Be prepared to discuss the steps involved, including building a cash flow forecast, calculating the weighted average cost of capital (WACC), and determining the terminal value.
  2. Explain the difference between Enterprise Value (EV) and Equity Value. – Understand how debt impacts a company’s overall value.
  3. How would you value a company with negative earnings? – Be prepared to discuss alternative valuation methods like using multiples or precedent transactions.
  4. Walk me through a Leveraged Buyout (LBO) model. – Explain how debt financing is factored into valuation and how the capital structure affects returns.
  5. What are some key metrics used to analyze a company’s financial health? – Be familiar with ratios like EBITDA, debt-to-equity, and current ratio.

Investment Banking Products & Services

  1. What is the difference between an IPO (Initial Public Offering) and an M&A (Mergers & Acquisitions) deal? – Explain the purpose of each and the role of an investment bank.
  2. Describe the process of helping a company go public (IPO). – Explain the steps involved from pre-IPO planning to execution and listing.
  3. What are the different types of mergers? – Be familiar with terms like mergers of equals, acquisitions, and tender offers.
  4. Why might a company consider a merger or acquisition? – Discuss strategic benefits like market expansion, cost synergies, and economies of scale.
  5. What are some of the challenges involved in an M&A deal? – Be prepared to discuss due diligence, regulatory hurdles, and integration risks.

Markets & Current Events

  1. Tell me about a recent deal you find interesting. (If you have prior experience) – Even if you don’t, be prepared to discuss a recent M&A or IPO news story and analyze the reasons behind it.
  2. What are your thoughts on the current market conditions? – Briefly discuss relevant economic factors and how they might affect investment banking activity.
  3. Why do you want to work in investment banking? – Express your genuine interest in the field and what excites you about the role.

Behavioral Questions

  1. Tell me about a time you faced a challenging situation and how you overcame it. – Highlight your problem-solving skills and ability to work under pressure.
  2. Why are you interested in our bank specifically? – Research the bank’s areas of expertise and demonstrate your interest in their specific deals or culture.

What to Expect in an Investment Banking Interview?

Investment banking interviews typically involve multiple rounds, including phone interviews, technical assessments, and in-person interviews with analysts, associates, and directors. Be prepared to showcase your:

investment banking notes
  • Technical knowledge: Investment banking revolves around finance fundamentals. Brush up on financial statements, valuation methods (DCF, multiples approach), capital structure, and M&A (mergers and acquisitions) concepts.
  • Analytical skills: Investment bankers are problem solvers. Be prepared to analyze case studies, demonstrate critical thinking, and present your findings logically.
  • Communication skills: You’ll be working with clients, colleagues, and superiors. Strong communication skills are essential for conveying complex information clearly and concisely.
  • Teamwork: Investment banking is a team sport. Highlight your ability to collaborate effectively and contribute meaningfully to group projects.
  • Work ethic and motivation: Investment banking is demanding. Be prepared to demonstrate your hunger to learn, resilience, and dedication to achieving career goals.

By preparing for these questions, along with practicing financial modeling and case studies, you’ll be well on your way to acing your investment banking interview.

FAQs on Investment Banking Interview Questions

What are the toughest investment banking interview questions?

While difficulty can vary, technical questions on valuation techniques (DCF, Comps) or financial statement analysis can be challenging. Behavioral questions testing stress management and teamwork are also demanding.

How can I prepare for investment banking interview brain teasers?

Practice online resources with sample brain teasers and logical puzzles. Focus on demonstrating your problem-solving approach and analytical thinking more than finding the “right” answer immediately.

What are some good investment banking interview questions for college graduates?

For fresh graduates, expect questions on core finance concepts, financial statements, and your understanding of investment banking activities. Behavioral questions will assess your teamwork, communication, and problem-solving skills.

Are investment banking interviews all technical?

No, while technical knowledge is crucial, investment banks also value soft skills. Expect behavioral questions that assess your work ethic, communication, teamwork, and ability to handle pressure.

What are some common mistakes to avoid in investment banking interviews? 

Lack of preparation, poor financial knowledge, negative body language, and bad-mouthing previous employers are big no-nos. Research the bank, practice common interview questions, and showcase your enthusiasm and professionalism.

How long should investment banking interview answers be?

Aim for concise and clear answers, typically 1-2 minutes for technical questions and 2-3 minutes for behavioral questions. Elaborate with specific examples when possible, but avoid rambling.

What should I wear to an investment banking interview? 

Dress professionally! Opt for a conservative suit with polished shoes and minimal jewelry. First impressions matter, so project a neat and confident appearance.

Is it okay to ask questions during an investment banking interview?

Absolutely! Asking well-researched questions about the role, the team, or the bank’s culture demonstrates your genuine interest and initiative. It’s a two-way street – you’re interviewing them as much as they’re interviewing you.

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