Investment banking interview questions: Examples and best answers

Considering a career in investment banking (IB)? Be prepared because this field is extremely competitive. As confirmed in Goldman Sachs’ 2024 recruitment report, 315,126 internship applications yielded only 2,600 hires. This translates to a 0.9% selection rate that highlights the industry’s intensifying talent filtration.

Across the industry, more than 70 candidates typically compete for a single investment banking position. To succeed, applicants must thoroughly prepare for an interview. This comprehensive guide outlines the most common investment banking interview questions, both technical and behavioral, and provides in‑depth answers to help future analysts and associates successfully start their careers.

Types of investment banking interview questions

Investment banking interviews systematically evaluate candidates through standardized question frameworks that evolve with seniority. While specific investment banking interview questions vary, their structure correlates directly with role expectations:

• Analyst candidates (0–2 years) face foundational corporate finance concepts. Interviewers typically test core understanding of the financial statements and basic valuation mechanics. Interviewers may stress-test an applicant’s grasp of critical working capital elements like accounts receivable valuation reserves and accrued expenses reversal timing. Approximately 25–30% of interview questions are technical, while 60% or more focus on behavioral and fit dimensions. However, some firms may heavily emphasize technical expertise.
• Associate-level applicants (MBA/3+ years) tackle more advanced applications. Candidates will be expected to model discounted cash flow analysis, including terminal value calculations, defend weighted average cost assumptions, and analyze capital structure trade-offs (e.g., “Why choose high yield debt over equity issuance?”). Questions typically probe precedent transaction analysis skills and M&A accretion/dilution impacts on net income.
• VP/Director roles focus on strategic execution. Therefore, technical questions address complex capital markets scenarios (e.g., “Structuring leveraged buyout financing for a private company”). Candidates should expect deep dives into optimizing tax-deductible structures, managing interest rate exposure, and financial performance diagnostics across economic cycles.

All investment banking professionals encounter four universal dimensions:

Here is a quick comparison of interview questions to anticipate by role:

Experience Level	Focus Areas	Technical Question Share	Example Topics
Analyst (0–2 yrs)	Core finance concepts, behavioral fit, basic modeling	Typically ~25–30% (varies by firm)	Three financial statements, working capital, and deferred revenue
Associate (MBA/3+ yrs)	Advanced modeling, valuation frameworks, capital structure trade-offs	Typically ~40–50% (heavily technical)	DCF, WACC defense, M&A accretion/dilution, precedent transactions
VP/Director	Strategic execution, structuring, and market navigation	High-level strategic + case-based	LBO structuring, tax shields, macroeconomic exposure, debt vs. equity

Key investment banking interview questions and answers

The core of any M&A investment banking interview is to assess the candidate’s expertise in the field with a series of questions. They test candidates’ hard skills (financial expertise) and soft skills (teamwork, stress management). They can be split up into several subcategories:

IB accounting questions

Investment banking interviews rigorously test accounting fundamentals — precise answers demonstrate analytical rigor. Below are essential investment banking accounting questions with concise explanations:

What are the three types of financial statements?

• There are three main financial statement types — income statement, balance sheet, and cash flow statement.
• The income statement displays the company’s revenues and expenses over a period and ends with net income.
• The balance sheet illustrates information about the company’s assets and liabilities — cash, inventory, property, and equipment, as well as shareholders’ debt, equity, and accounts payable.
• The cash flow statement gives the company’s net change in cash. It begins with net income and shows the company’s cash flows from financing, investing, and operating activities.

What is working capital, and how is it calculated?

• Working capital is the difference between a company’s current assets (cash, inventories, finished goods, customers’ unpaid bills) and current liabilities (debts and accounts payable). 
• Working capital can be positive or negative. 
• Positive working capital signals that a company can invest in future growth and activities. 

The formula for calculating working capital is as follows: Working capital = Current assets – Current liabilities

Sample inputs:

• Assets: $500,000
• Liabilities: $350,000

Calculation: Working Capital = $500,000 – $350,000 = $150,000

Why is it better for a company to issue debt instead of equity?

There are a few reasons why issuing debt instead of equity is preferred:

• This is a cheaper and less risky way of financing.
• The company benefits from tax shields if it has tax-deductible income.
• Issuing debt instead of equity is profitable if the company has consistent cash flows and can make interest payments.
• It often might result in a lower weighted cost of capital.

Enterprise or equity value questions

Usually, questions on enterprise value and equity value are straightforward. To answer those questions, it’s important to know the theory as well as all the essential formulas. Here are some of the most common enterprise value questions asked in investment banking interviews:

Why do we look at enterprise value and equity value?

Enterprise value and equity value are two common methods for evaluating a business, but each of them provides a slightly different perspective. 

Equity value represents the total market value of shareholders’ ownership stake, calculated as the current share price multiplied by diluted shares outstanding. Enterprise value offers a more comprehensive measure by including debt and excluding cash, representing the total value of the business’s core operations to all capital providers.

Enterprise value (EV) quantifies the theoretical acquisition price for a business, covering all capital providers. Unlike intrinsic value, which reflects a company’s true economic worth, EV is susceptible to market sentiment fluctuations.

It’s important to look at both enterprise value and equity value to get a broader perspective of the company’s potential after the merger or acquisition and define the selling cost more accurately.

The key point is that regardless of how a company is financed, its enterprise value — and enterprise value-based multiples — do NOT change. Equity value, however, may change depending on its share count and any shares it issues or repurchases.
Breaking Into Wall Street

How is the cost of equity calculated?

To calculate the cost of equity, investment bankers usually use the capital asset pricing model (CAPM):

CAPM = Risk-free rate + Beta × (Expected market return – Risk-free rate)

Where:

• Risk-free rate (Rf) = Return on a “risk-free” investment, typically a government bond (e.g., 10-year U.S. Treasury yield)
• Beta (β) = Quantifies a stock’s sensitivity to systematic market risk, measuring how its returns fluctuate relative to a broad market index
• Expected market return (Rm) = The long-term yield equity investors demand for bearing systematic risk
• (Expected market return – risk-free rate) = Equity market risk premium (EMRP) — the excess return equity investors demand above the risk-free rate to compensate for stock market volatility

Sample inputs:

• Risk-free rate (Rf) = 4.0% (e.g., 10-year U.S. Treasury yield)
• Beta (β) = 1.3 (the stock is 30% more volatile than the market)
• Expected market return (Rm) = 9.0%

Calculation:

• Calculate the equity market risk premium (EMRP): EMRP = Rm – Rf = 9.0% – 4.0% = 5.0%
• Apply the CAPM formula: Cost of equity = 4.0% + 1.3 × 5.0% = 4.0% + 6.5% = 10.5%

How is enterprise value calculated?

The formula for calculating enterprise value is as follows:

Enterprise value (EV) = Market value of equity + Debt + Minority interest + Preferred stock – Cash

Where:

• Market value of equity = Share price × Total number of diluted shares outstanding
• Total debt = Short-term debt + Long-term debt
• Minority interest = Portion of subsidiaries that the company does not fully own
• Preferred stock = Hybrid security with equity and debt features
• Cash and cash equivalents = Highly liquid assets (e.g., bank deposits, Treasury bills)

Sample inputs:

Component	Value	Notes
Share price	$50	Market price per share
Diluted shares outstanding	100 million	Includes options, RSUs, convertibles
Short-term debt	$200 million	Includes the current portion of long-term debt
Long-term debt	$800 million	Bonds, loans, and notes payable
Minority interest	$100 million	20% stake in consolidated subsidiary
Preferred stock	$150 million	Fixed dividend preferred equity
Cash & cash equivalents	$300 million	Highly liquid assets

Calculation:

• Market value of equity = Share price × Diluted shares: $50 × 100 million = $5 billion
• Total debt = Short-term debt + Long-term debt: $200 million + $800 million = $1 billion
• EV = $5 billion (equity) + $1 billion (debt) + $100 million (minority interest) + $150 million (preferred stock) – $300 million (Cash) = $5.95 billion

Which value matters more in an acquisition: Enterprise or equity value?

Enterprise value is more relevant in an acquisition context because it reflects the full cost of purchasing the business, including the assumption of debt. Acquirers typically look at the enterprise value to assess what they must pay to gain control of the entire capital structure.

How do changes in capital structure affect enterprise value and equity value?

This is a common conceptual question in interviews that tests a candidate’s understanding of how financing decisions influence valuation.

Enterprise value generally remains unchanged when a company changes its capital structure (e.g., by issuing debt to repurchase shares) because EV is capital structure-neutral. It reflects the value of the business’s operations to all capital holders. Equity value, on the other hand, does change with capital structure decisions. For instance:

• When a company borrows debt to repurchase its shares, the resulting equity value declines due to reduced shares outstanding and increased financial leverage.
• If new shares are issued, equity value increases (more ownership claims on the business).

Interviewers may follow up by asking how this affects valuation multiples like EV/EBITDA or P/E ratio or how one would adjust a discounted cash flow (DCF) model accordingly.

Valuation questions

Candidates pursuing a career in investment banking need to demonstrate above-average knowledge in valuation. Below are some of the most frequently asked investment banking internship interview questions on valuation:

What are the three main valuation methodologies?

There are three primary valuation methodologies used in investment banking:

What are the other valuation methods?

The most popular valuation methods are liquidation valuation, replacement value, leveraged buyout (LBO) analysis, the sum of the parts (SOTP), future share price analysis, and M&A premium analysis.

Why would you use multiple methods to value a company?

Each valuation method is based on different assumptions and may yield different values. Usually, the precedent transaction and discounted cash flow method demonstrate higher valuations than the comparable companies method.

Discounted cash flow questions

DCF questions during the Investment banking recruiting process are usually not limited to the basis of constructing a DCF model. Candidates should also understand the cost of equity, WACC, terminal value, and other concepts. Below are only a few of the most common DCF questions you should expect during an investment banking interview.

What is a discounted cash flow? 

Discounted cash flow is a fundamental valuation method used to estimate a company’s intrinsic value by projecting its future free cash flows and discounting them to present value using the company’s WACC. The total value equals the sum of the present value of projected cash flows and the present value of the terminal value.

What is a weighted average cost of capital, and how is it calculated?

The WACC demonstrates the company’s overall cost of raising capital. It also represents the risk of investing in the target company. To calculate WACC, investment banking experts use the following formula, which includes debt, common equity, and, importantly, preferred stock if the company has issued itЖ

WACC = Cost of equity × (% equity) + Cost of debt × (% debt) × (1 – Tax rate) + Cost of preferred stock × (% preferred stock)

Where:

• Cost of equity = The annualized return demanded by equity investors for bearing ownership risk
• % Equity = The proportion of total capital funded by shareholders (equity / total capital)
• Cost of debt = The after-tax interest rate a company incurs on its borrowings
• % Debt = The proportion of total capital financed with debt (debt ÷ total capital)
• Tax rate = The corporate tax rate; debt interest is tax-deductible, so we adjust for taxes
• Cost of preferred stock = The required return by preferred shareholders, usually the dividend yield
• % Preferred stock = The proportion of total capital coming from preferred stock

Sample inputs:

• Cost of equity = 10.5%
• % Equity = 50%
• Cost of debt = 6.0%
• % Debt = 30%
• Cost of preferred stock = 7.5%
• % Preferred stock = 20%
• Tax rate = 25%

Calculation: WACC = (10.5% × 50%) + (6.0% × 30% × (1 – 25%)) + (7.5% × 20%) = 8.10%

How are unlevered free cash flows for the DCF analysis calculated?

For this, investment bankers use a dedicated formula:

Unlevered free cash flow (UFCF) = EBIT × (1 – Tax rate) + Depreciation & amortization – Change in net working capital – Capital expenditures

Where:

• EBIT = Earnings before interest and taxes
• Tax rate = The effective corporate tax rate
• Depreciation & amortization (D&A) = Non-cash charges added back
• Change in net working capital (ΔNWC) = Change in (Current assets – Current liabilities)
• Capital expenditures (CapEx) = Spending on physical assets like property, plant, and equipment (PP&E)

Sample inputs:

• EBIT = $200 million
• Tax rate = 25%
• Depreciation & amortization (D&A) = $30 million
• Change in net working capital (ΔNWC) = $15 million (positive, so it’s a cash outflow)
• Capital expenditures (CapEx) = $50 million

Calculation:

1. Calculate EBIT × (1 – Tax rate): $200 million × (1 – 0.25) = $200 million × 0.75 = $150 million
2. Add depreciation & amortization: $150 million + $30 million = $180 million
3. Subtract change in net working capital: $180 million – $15 million = $165 million
4. Subtract capital expenditures (CapEx): $165 million – $50 million = $115 million

How is the terminal value in a DCF calculated and interpreted?

Terminal value (TV) quantifies the residual worth of a business after the projection period. As the dominant DCF driver, terminal value requires choosing between the Gordon growth model and the exit multiple method.

Gordon growth model (perpetuity growth):

TV = FCFₙ × (1 + g) / (WACC – g)

Where:

• TV = Terminal value (at the end of the final projection year)
• FCFₙ = Free cash flow in the final projected year (usually Year 5 or Year 10)
• g = Long-term perpetual growth rate of FCF (typically 1.5%–3% for developed markets)
• WACC = Weighted average cost of capital

This formula assumes the business continues indefinitely, growing at a steady, perpetual rate g after the forecast period. Small changes in g or WACC can have outsized impacts. You could emphasize that the Gordon growth method is more appropriate when the business has predictable, stable growth beyond the forecast window (e.g., utilities or mature industries). This is also a more theoretical method.

Here are sample inputs:

• Free cash flow in Year 5 (FCF5): $25 million
• Long-term growth rate (g): 2.5% (0.025)
• Weighted average cost of capital (WACC): 8% (0.08)

Calculation:

1. Adjust FCF for the growth rate: FCF5​ × (1 + g) = 25 × (1 + 0.025) = 25.625
2. Calculate the denominator: WACC − g = 0.08 − 0.025 = 0.055
3. Calculate terminal value at the end of Year 5: TV = FCF5 × (1 + g) ÷ (WACC – g) = 25 × (1 + 0.025) ÷ (0.08 – 0.025) = 25.625 ÷ 0.055 = $465.91 million
4. Discount the terminal value back to the present value using WACC: PVTV = TV ÷ (1 + WACC)⁵ = 465.91 ÷ (1.08)⁵ = 465.91 ÷ 1.4693 = $317.1 million

TV calculated using an exit multiple method:

TV = Final year metric × Exit multiple

Where:

• Final year metric = A financial performance metric from the last forecast year (commonly EBITDA, EBIT, or Revenue)
• Exit multiple = Valuation multiple based on comparable company or precedent transaction analysis (e.g., EV/EBITDA = 10×)

This methodology anchors terminal value to observable market pricing, where precedent M&A transactions and comparable public company valuations signal achievable exit multiples. It is more market-based, but subject to cyclicality and comparability risks because of market conditions that are unusually high or low. Or, if inappropriate comparable companies are chosen, the resulting multiple may misrepresent the business’s true long-term value, leading to an inaccurate terminal value.

Example inputs:

• Final year EBITDA (Year 5): 30 million
• Exit multiple (EV/EBITDA): 10×
• Discount rate (WACC): 9%
• Year of terminal value: End of Year 5

Calculation:

1. Terminal value (TV) at the end of Year 5: TV = Final year EBITDA × Exit multiple = 30 × 10 = $300 million
2. Present value of terminal value (PVTV): PVTV = TV ÷ (1 + WACC)⁵ = 300 ÷ (1.09)⁵ = 300 ÷ 1.5386 = $194.98 million

Merger model questions

For entering the corporate finance industry, prospective investment bankers and associates should understand the concept of mergers and acquisitions, though not necessarily at the level of a dedicated M&A specialist. Here are common investment banking interview questions for freshers about M&A:

What’s the difference between a merger and an acquisition?

These two types of deals differ in the size of the buying and selling sides. A merger generally happens between two companies that are approximately the same size, and together, they form a new joint entity. 

Acquisition typically refers to a deal where the buying company is substantially larger than the target (selling) company, and it’s always about a takeover of one entity by another.

When is an acquisition considered dilutive? 

A deal is dilutive when the acquiring company’s earnings per share (EPS) decrease after the deal’s closure. 

What are synergies and their main types?

Synergies in mergers and acquisitions happen when the acquiring company gets more value out of the deal than was predicted.

There are two types of synergies:

Leveraged buyout (LBO) model questions

As with any category of investment banking interview questions, the candidate should demonstrate knowledge of basic LBO concepts and prove they understand how different variables influence the output. Below are the three most commonly asked LBO questions during the investment banking interview:

What is a leveraged buyout?

A leveraged buyout is an acquisition of another company with the help of borrowed money to meet the deal’s cost. As a rule, LBO comes with a ratio of 90% debt to 10% equity.

What variables have the most impact on an LBO model?

Purchase and exit multiples affect the returns of a model the most. After this, the amount of used debt, revenue growth, and EBITDA margins have a substantial impact as well.

What is the tax shield in an LBO?

A tax shield in LBO takes place when the interest expense a company pays on debt is taxable, which helps the company to save money on taxes and, as a result, increase its cash flow.

Behavioral investment banking interview questions

Among the additional investment banking interview questions are those that are less connected to the theoretical and technical part, which entails such aspects as preparing a company for an IPO. Such questions are often regarded as behavioral or fit. The main goal of behavioral questions is to clarify the candidate’s soft skills and personality traits. Below are a couple of examples of fit questions a candidate can expect to hear during an investment banking interview.

Why investment banking?

Craft a response anchored in the bank’s specialization. Demonstrate relevance by linking your professional track record directly to the role’s responsibilities.

What qualities should investment bankers have?

Before naming a list of qualities a person should have to work in an investment bank, make sure you possess at least 80% of them:

• Strong communication skills
• Attention to detail
• Time management skills
• Analytical mindset
• Ability and willingness to multitask
• Ability to meet deadlines of multiple tasks
• Determination
• Strong work ethic

Can you describe an instance in which you resolved a team conflict during a live deal?

Using a STAR (situation, task, action, result) framework when answering questions about teamwork and conflict resolution is effective. For example, “When teammates disagreed on an LBO debt structure (situation & task), I facilitated a cost-of-capital comparison (action). We adopted the optimal structure, securing client approval (result).”

There might be a tricky probe: “Would you override a senior banker’s error?” A strong, diplomatic reply should be worded similarly to the following: “I’d present alternatives with supporting data respectfully.”

How do you manage stress in volatile markets?

The best approach would be to demonstrate a system rather than just willpower. For example, “I segment work into 90-minute blocks with 5-minute breathing breaks. Sunday planning identifies high-leverage tasks, while real-time deal trackers prevent missed deadlines.”

An interviewer might also ask a follow-up question such as: “What’s your plan if your model fails hours before a pitch?” A strong but confident answer, again, should demonstrate a step-by-step action plan: “I would isolate the error, use backup assumptions, and immediately flag limitations.”

Can you walk me through a deal you analyzed?

If faced with questions about your deal experience, focus on your specific contribution: “For a retail acquisition, I modeled revenue synergies from store consolidations. My analysis showed 15% EPS accretion, which was key to the client’s approval.”

Technical question formulas cheatsheet

Here is a quick table of formulas for technical questions in IB interviews.

Topic	Formula	Components	Example Use
Enterprise value (EV)	EV = Equity value + Net debt + Preferred stock + Minority interest – Cash	Net debt = Total debt – Cash	Used in valuation multiples (e.g., EV/EBITDA)
Equity value	Equity value = Share price × Shares outstanding	Market cap measure of shareholder value	Used in P/E ratio, market-based valuation
P/E ratio	P/E = Equity value/Net income	Shows how much investors are paying for $1 of earnings	Valuation via earnings
EV/EBITDA multiple	EV/EBITDA = Enterprise value/EBITDA	Used for relative valuation	Compare across companies
Enterprise value from DCF	EV = Present value of UFCFs + Present value of terminal value	DCF core formula	Determines intrinsic business value
WACC	WACC = (E/V × Re) + (D/V × Rd × (1 – Tc)) + (P/V × Rp)	E/V = % Equity, D/V = % Debt, P/V = % Preferred stock; Re = Cost of equity; Rd = Cost of debt; Tc = Tax rate; Rp = Cost of preferred stock	Used to discount cash flows in DCF
Cost of equity (CAPM)	Re = Rf + β × (Rm – Rf)	Rf = Risk-free rate; Rm = Market return; β = Beta	Measures return required by equity investors
Unlevered free cash flow (UFCF)	UFCF = EBIT × (1 – Tax Rate) + D&A – ΔNWC – CapEx	EBIT = Earnings before interest & taxes; D&A = Depreciation & Amortization; ΔNWC = Change in Net Working Capital	Used in DCF to forecast free cash flow
Terminal value (Gordon growth method)	TV = FCFₙ × (1 + g)/(WACC – g)	FCFₙ = Final year free cash flow; g = perpetual growth rate; WACC = discount rate	Projects value beyond the forecast period in DCF
Terminal value (Exit multiple)	TV = Final year metric × Exit multiple	Final Year Metric = EBITDA, EBIT, or Revenue; Exit multiple from comps	Market-based DCF terminal value
PV of terminal value	PVTV = TV/(1 + WACC)ⁿ	n = number of forecast years	Brings TV to present value
Tax shield in LBO	Tax Shield = Interest expense × Tax Rate	Reduces taxable income, increases cash flow	Boosts returns in the LBO model
LBO return (IRR)	IRR = (Final Equity Value/Initial Equity Investment)^(1/n) – 1	Measures annualized return for the sponsor	Key outcome metric in LBO
Levered free cash flow (LFCF)	LFCF = Net income + D&A – CapEx – ΔNWC – Mandatory debt repayments	Includes the impact of debt financing	Sometimes used for equity valuation

Next steps and resources

Prepare for IB interviews systematically using this roadmap and recommended materials:

• Begin structured interview preparation 2–3 months ahead. Cover accounting, DCF, LBO, and multiples.
• Practice behaviorals with the STAR method and recent deal discussions.
• Supplement preparation with mock interviews.

The following resources will help you thoroughly prepare for an interview and deepen your knowledge of investment banking and mergers and acquisitions:

• IB Vine. Comprehensive prep platform offering interview questions, model answers, and deal-specific practice
• Rosenbaum & Pearl: Investment Banking: Valuation, LBOs, M&A, and IPOs. The industry gold standard for technical frameworks, with downloadable Excel models
• Vault Guide to Finance Interviews. A trusted collection of technical, behavioral, and case questions with solutions
• Andrew Sherman: Mergers and Acquisitions from A to Z. Detailed walkthrough of the entire M&A lifecycle with real-world checklists and case studies
• McKinsey & Company: Valuation: Measuring and Managing the Value of Companies. Authoritative reference covering advanced valuation frameworks and real corporate examples

A guide on going public

One of the primary roles of investment bankers is to advise and intermediate Initial Public Offers (IPOs). 

With this in mind, the M&A Community, in collaboration with iDeals, produced the IPO consideration stage whitepaper, supporting professionals in better understanding the key considerations around going public.

Download the whitepaper here. 

Key takeaways

• Master core concepts like enterprise value vs. equity value, DCF analysis, and financial statements. These dominate technical interviews.
• Behavioral fit separates contenders. Demonstrate resilience, teamwork, and strategic thinking using the STAR method with deal-specific examples.
• Preparation varies by seniority. Analysts drill accounting basics; associates model complex LBOs/DCFs; VPs strategize capital markets execution.
• Resource-driven practice wins. Combine technical guides, mock interviews, and market trend tracking for 360° readiness.