Top 4 S&T and IBD Interview Questions & Answer Tips

1️⃣ What is the difference between spot rate, forward rate  and yield to maturity (YTM)?

💡YTM is the total rate of return that will have been earned by a bond when it makes all interest payments and repays the original principal. The spot rate is the rate of return earned by a bond when it is bought and sold on the secondary market without collecting interest payments. Spot rate is the yield-to-maturity on a zero-coupon bond, whereas forward rate is the interest rate expected in the future.

2️⃣ How to evaluate a firm using 3 financial statements

💡The income statement, balance sheet, and cash flow statement are interlinked through various line items across the financial statements to forecast a firm’s future performance:

⮞Line items for each of the core statements are set up as layout of the overall format financial model

⮞Update historical figures in each of the line items; ensure that each core statement reconciles with data in the other 

⮞Create an assumptions section within the sheet to analyze the trend in each line item of the core statements between periods under consideration

⮞Use the assumptions from the existing historical data to create forecasted assumptions for the same line items 

⮞The forecasted section of each core statement will use the forecasted assumptions to populate values for each line item. The populated values should follow historical trends as you’ve analyzed past trends to create the forecasted assumption

⮞Calculate more complex line items using supporting schedules (eg: depreciation and amortization schedule is used to calculate depreciation expense and the balance of long-term fixed assets).

3️⃣ What is delta, and how does it change with the underlying’s price, volatility, and the passage of time?

💡It’s a theoretical estimate of how much an option’s premium may change given a $1 move in the underlying. For an option with a Delta of .50, you can expect about a $.50 move in that option’s premium (given a $1 move, up or down, in the underlying). The value of delta ranges from -100 to 0 for puts and 0 to 100 for calls. Implied volatility, days remaining to expiration, and stock price affect Delta. High implied volatility pushes Delta toward .50 as more strikes will now be considered possible for winding up in-the-money owing to the perceived potential for movement in the underlying. Long calls have positive Delta, short calls have negative Delta. Long puts have negative Delta, and short puts have positive Delta. The closer the option is to expiration, the more likely it is to end up in its current state whether in, out, or at the money.

4️⃣ Why do you wish to pursue S&T over any other field?

💡It’s a test of fit, personality, and your motivation behind pursuing #salesandtrading, especially since it's high pressure role prone to early burnouts. 

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