Finance interview technical questions – Asset management

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In order to help us prepare the interviews cohesive with other finance fields, we have grouped the asset management interview questions in the similar sectors.

1) “Who”: Tell me about yourself, Walk me through your resume

2) “Why”: Fit and motivation questions. “Why asset management”, “Why our firm”, “Why our strategy”

3) “How”: Technical questions, Pitch an investment idea/choice, Modelling test (depending on your level)

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But different from our previous blogs on IBD and Sales&Trading questions:

a) In section 2) “Why”, we have added “Why our strategy”: in addition to prepare “why this job”, “why us”, you will also need to prepare answers to back up your view on the fund and their investment strategy

b) In section 3) “How”, besides the general technical questions, you most likely will also need to Pitch an investment idea/choice (or two). Depending on the positions you are applying to, you might be tested on the modelling skills

It is highly suggested to  read WSJ/FT before the interview, and know all the recent news/deals, and get familiar with the recent drivers of the markets.

Below is a list of the questions compiled by City Sail blog contributors to help us prepare the Asset Management interview technical questions.

I.       Stock/investment idea Pitching:

Questions below use stock as an example – same applies to other ideas you are pitching, depending on the fund you are interviewing with.

1)     So what is a stock I should buy (short) now and why?

2)     General information on the company

3)     Walk me through the major financials and ratios of the company: ROIC FCF, EPS/margin upside, tangible book etc.

4)     What are the comparable companies for the company?

5)     How is the competitive landscape of the industry?

6)     Have you built your own 3 statement model on the company? What have you found?

7)     What are the main drivers, major assumptions, greatest risks you used on your analysis?

8)     What’s the opinion of the stock on the Street (in the City)? Does your opinion agree or dissent with the consensus, and why?

9)     What’s the effect of macroeconomic factors on the stock & its industry?

10)   What are the major news events in the sector?

11)   What are the upcoming catalysts for the stock?

12)   Pitch me another stock: (euh… you only prepared one…that’s not good…)

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II.      General technical/investment questions:

13)   If Microsoft announces a new issue of 2,000,000 units at $120, with each unit consisting of one share of common, one share of preferred and a warrant for ¼ of a share of common, how many new shares of common will be issued assuming that the offering is successful and all warrants are exercised?

14)   What would be a good instrument to use to hedge a portfolio of preferred stock?

15)   If you are buying corporate bonds, which is more speculative: A, Aa, Baa or B?

16)   If a client purchases a 6%, £1,000 bond selling at a yield to maturity of 7%, what is the a mount of the semi-annual interest payment?

17)   Suppose you have an investment earning 1% per month. How do you convert this to an annual rate?

18)   If you earn 6% a year using simple compounding, how would you calculate how much you would earn in a 90-day period?

19)   You have a client that wishes to be invested in a bond portfolio. Would you recommend short- or long-term bonds for this client, and why?

20)   A client expects the market to move significantly and wants to hedge against either direction. What strategy would you recommend? Explain.

21)   A client purchased a 10-year 5% par bond that will yield 6% if called at the first call date in 2 years. If the client holds the bond to maturity, what will the yield on the bond be? What if he sells the bond prior to maturity?

22)   A corporate treasurer is borrowing at LIBOR to fund automobile loans. She wants to hedge against anticipated rises in the short rate. What hedging strategy would you recommend? What factors influence the price of a bond?

23)   If a fixed income client is interested in capital appreciation, in what type of interest rate environment should he buy bonds?

24)   A client in the 30% tax-bracket has a choice between a tax-free municipal bond yielding 7% and a corporate bond yielding 8.5%. Which should he choose? What would the yield on the corporate bond have to be in order to be equivalent to the tax-free bond?

25)   A convertible bond is selling at £1,200. It is convertible into 80 shares of stock. What would the stock price have to be for the convertible bond to be at parity with the stock?

26)   The U.S. Treasury sells bonds at 1-year, 2-year, 5-year and 10-year maturities. You need the yield on a 7-year Treasury bond. How do you get it?

27)   Walk me through various valuation methods

28)   Tell me the recent news/deals you read

29)   What are the recent drivers of the markets

30)   What do you think are the upcoming catalysts for the markets

31)   If you had no comparable companies for a stock, how can you evaluate if a stock is cheap?

32)   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?

33)   What makes a stock a good investment?

34)   Do you invest in stocks or companies?

35)   Why are high P/E stocks more susceptible to major declines when interest rates increase?

36)   You have the balance sheets from Intel and Disney/ABC in front of you. What do you think would be some of the differences?

37)   What does the cost structure like for the xxx industry? Fixed, variable etc.? What are their biggest cost components?

38)   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?

39)   What was your best investment? Why? What did you learn?

40)   What was your worst investment?  What did you learn?

41)   If the FED hikes rates by 0.5%, what would you expect the impact to be on the market?

42)   Think about the differences between cyclical & growth industries, and how they are affected external factors?

43)   Where do you see the market in 5 – 10 years and what leads you to believe so?

44)   For those of you looking at all at Fixed Income, where is the long bond and what is it an indication of?

45)   What’s your research process to pick an investment?

46)   Why do you enjoy stock-picking?

47)   What is your take on the market? Why?

48)   Which of our funds would you recommend investing in now and why?

49)   How would you approach stakeholder engagement?

50)   If the stock you recommended a few weeks ago began dropping precipitously, what would you do?

51)   What is your favorite financial statement and why?

52)   What would a mutual fund company’s three financial statements look like? Walk me through them

53)   If you could invest in one underlying asset right now what would it be?

54)   If a client gave you £100m to invest, how would you allocate their assets?

55)   If you could buy one stock for the next 50 years what would it be?

56)   How do you currently keep up with the markets?

57)   Where do you see the market going in the next 6 months, 15 years etc.? How will that affect the debt-equity shift in a retirement portfolio?

58)   What was the last book you read?

59)   If you could ask management five questions what would they be?

60)   What do you think about index funds? Do you subscribe to the “Random Walk” theory?

61)   Stocks historically outperform bonds over the long term. If I am a long-term investor, I don’t need any bonds in my portfolio. True or false?

62)   What investment philosophy do you subscribe to and why?

63)   What would you do if a stock you just recommended lost 10% – 15% of its value?

64)   The S&P/FTSE is trading at a P/E multiple much higher than it was. Does this mean that stocks as a whole are currently overvalued?

65)   What kinds of things make a stock extremely volatile in the short term?

66)   How do you calculate the return on a stock?

67)   What is put-call parity? How is it used?

68)   Can you describe a situation when it would be optimal to exercise an American call option before the expiry date? Does it matter whether the stock pays dividends or not?

69)   What are the important factors affecting the value of an option?

70)   If the price of a stock increases by £1, how should the price of a call option change? What about a put option?

71)   What is a warrant? Do warrants affect a firm’s financial ratios such as ROE?

72)   What’s the formula for free cash flow?

73)   What is the difference between net income and free cash flow?

74)   Describe 3 important ratios used in value investing including their formula.

75)   What traits might an undervalued stock exhibit?

76)   What are the factors affecting refinancing and prepayments of mortgages

77)   Please describe one or more studies that validate the virtues of value investing?

Questions compiled by City Sail blog contributors. All rights reserved.



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