Debt Capital Markets interview preparation

Questions

100

Traced to a firm

45

Firms

26

Updated

September 2026

Asked at

All firmsTSTruist Securities5PIMCO4TD Securities4Apollo Global Management3Nomura3Scotiabank3Bain Capital2Houlihan Lokey2Mizuho2Neuberger Berman2Oaktree Capital Management2RCRBC Capital Markets2Carlyle Group1Deutsche Bank1Golub Capital1HPS Investment Partners1Invesco1KKR1Lazard1Moelis & Company1Moody's1Northern Trust1NUNuveen1Rothschild & Co1S&P Global1Wells Fargo Securities1

Topic

All topicsBond mechanics11Duration and convexity6Yield curve and rates5Credit spreads5Credit analysis and ratings13Credit modelling9Primary issuance9Syndication and loans10Structured credit7Covenants and documentation5Liability management5Indian debt markets7Fit8

Level

AnyCoreIntermediateHard

Type

AnyTechnicalBrainteaserMarket viewCaseFit

1. 004What is the difference between the clean price and the dirty price, and how does accrued interest work?Bond mechanicsIntermediatetechnicalFixed income asset management

   Say this

   The clean price is what gets quoted; the dirty price is what actually settles. The difference is accrued interest, the coupon the seller has earned since the last payment date but has not yet been paid.

   Then walk it

   1. Coupons pay to whoever holds the bond on the record date. If you sell halfway through a period, the buyer collects the whole coupon, so they compensate you for your half at settlement.
   2. Accrued equals the coupon times the day count fraction. A 6 percent semi-annual bond, 90 days into a 180-day period on a 30/360 basis, has accrued of 6 divided by 2 times 90 over 180, so 1.50 points.
   3. So a bond quoted at 98.00 settles at 99.50. Same bond, two numbers, and confusing them is a real settlement error, not a theoretical one.
   4. Clean prices are quoted precisely because they strip out the sawtooth. Dirty price rises steadily through the period then drops by the coupon on payment date; that pattern would make price charts useless.
   5. Yield is always calculated off the dirty price, because that is the actual cash outflow.
   6. One exception worth knowing: a defaulted or deeply distressed bond trades flat, meaning without accrued, because the coupon is not expected to be paid at all.

   Where candidates lose it

   Getting the definitions right but the direction wrong — saying the buyer receives accrued. The buyer pays it. And if you cannot do the day count fraction out loud, the answer sounds learned rather than used.

   Expect next

   • Work out accrued on a 4.5 percent semi-annual bond 45 days into the period.
   • What does it mean for a bond to trade flat?
   • Which price do you use to calculate yield?
2. 005A bond has a 6 percent coupon, 5 years to maturity, and trades at 95. Roughly what is the yield? Do it in your head.Bond mechanicsIntermediatetechnicalSyndicate desks

   Say this

   About 7.2 percent. Coupon income is 6 on 95, so 6.3 percent, plus 5 points of pull to par spread over 5 years, which is about 1 point a year or another 1.05 percent on a 95 price. Add them and you get roughly 7.3, and the true answer is 7.2.

   Then walk it

   1. The approximation is the coupon plus the annualised capital gain, all over the average of price and par. That is the standard back-of-envelope yield.
   2. Formally: 6 plus 5 over 5, so 7, divided by the average of 95 and 100, which is 97.5. That gives 7.18 percent.
   3. The reason the shortcut slightly overstates is discounting: the pull to par arrives at the end, so its present value is less than a point a year.
   4. Sanity check the direction first. It trades below par, so the yield must be above the 6 percent coupon. Getting the direction wrong is fatal; being 10 basis points out is not.
   5. The desk habit worth showing: quote it as roughly 7.2 and say you would price it exactly on the calculator. Interviewers want the instinct plus the discipline, not false precision.

   Where candidates lose it

   Reaching for a calculator, or freezing. This is a mental arithmetic test dressed as a bond question. State the direction first, then the approximation, then say you would confirm it precisely. Never quote a number to three decimals from a mental estimate.

   Expect next

   • Now do it for a bond trading at 105.
   • What if it had 20 years to maturity instead of 5?
   • What is the duration of that bond, roughly?
3. 008Why do day count conventions matter, and what is the difference between 30/360 and actual/actual?Bond mechanicsIntermediatetechnicalSyndicate desks

   Say this

   They decide exactly how much interest has accrued on any given day, which changes the cash that settles. 30/360 treats every month as 30 days and every year as 360; actual/actual counts real calendar days against the real year.

   Then walk it

   1. US corporates and munis conventionally use 30/360. US Treasuries and gilts use actual/actual. Money market instruments and floating rate loans use actual/360, and sterling markets use actual/365.
   2. The difference is small per trade and large in aggregate. On 100 million at 6 percent, a two-day discrepancy is about 33,000 dollars. Multiply across a book and it stops being academic.
   3. Actual/360 quietly pays more than it looks: you charge a year of interest over 360 days but collect for 365, so a stated 6 percent on actual/360 is an effective 6.08 percent. That is why loan markets use it.
   4. It also drives the comparison problem. Comparing a Treasury yield on actual/actual to a corporate on 30/360 without converting is a real error, which is why desks quote a bond-equivalent yield.
   5. The convention is not negotiable per trade; it is set in the documentation at issue, along with the business day convention that says what happens when a payment date falls on a weekend.
   6. Practical point: get this wrong on a settlement and it is an operational break, not a modelling nicety. It is one of the few places on a debt desk where precision is binary.

   Where candidates lose it

   Treating it as trivia. The follow-up is always 'so which is bigger, and by how much' — and the actual/360 effective-rate point is what shows you understand why anyone chose these conventions in the first place.

   Expect next

   • Why does actual/360 favour the lender?
   • Which convention does the Indian G-sec market use?
   • What is a bond-equivalent yield?
4. 010What is the difference between a bullet, an amortising bond and a sinking fund structure?Bond mechanicsIntermediatetechnicalStructured creditCorporate banking

   Say this

   It is about when principal comes back. A bullet repays all principal at maturity, an amortiser repays it in instalments over the life, and a sinking fund forces the issuer to retire a set amount of bonds each year, usually by open-market purchase or lottery redemption.

   Then walk it

   1. A bullet is the standard corporate bond. Clean, index-eligible, and it leaves the issuer with a refinancing cliff at maturity.
   2. Amortising structures dominate where the asset has a finite life: project finance, aircraft and equipment finance, most bank term loans, and asset-backed deals. The principal schedule tracks the cash the asset produces.
   3. Average life, not maturity, is the right measure for an amortiser. A 10-year loan amortising straight-line has an average life of about 5.5 years, so it prices off a 5-year benchmark, not a 10-year one.
   4. A sinking fund sits in between. The issuer must retire, say, 10 percent a year from year 5. It reduces the refinancing cliff, which lenders like, but it creates redemption uncertainty for a holder, who may be taken out early at par.
   5. Investor consequence: an amortiser returns capital steadily, so reinvestment risk is higher and duration is much lower for the same stated maturity.
   6. Why it matters in DCM: you match the repayment profile to the cash flow profile. A toll road with 25 years of contracted revenue amortises; a corporate issuing for general purposes bullets and expects to refinance.

   Where candidates lose it

   Treating average life and maturity as the same thing. On an amortiser they differ sharply, and pricing an amortising structure off the maturity benchmark rather than the average-life benchmark is a real mispricing, not a definitional slip.

   Expect next

   • Calculate the average life of a 10-year loan amortising 10 percent a year.
   • Which benchmark would you price it off?
   • Why do project finance deals always amortise?
5. 011Explain a callable bond and a puttable bond. Who holds the option, and what does it do to the yield?Bond mechanicsIntermediatetechnicalFixed income asset managementLeveraged finance

   Say this

   The issuer holds the call, the investor holds the put. A callable bond must yield more than an otherwise identical bullet, because the investor sold an option; a puttable bond yields less, because the investor bought one.

   Then walk it

   1. The issuer calls when it is in the money for them, which is when rates or spreads have fallen and they can refinance cheaper. So the investor loses exactly when holding would have paid best.
   2. That is negative convexity. As yields fall, the callable bond's price stops rising because it gets pinned near the call price. You get the downside of rates rising and a capped upside when they fall.
   3. Which is why you quote yield to worst, and why option-adjusted spread exists: OAS strips out the value of the embedded option so you can compare the callable against a bullet on credit alone.
   4. High yield bonds are almost always callable after a non-call period, typically non-call 2 or 3 on a 5-year, with a declining call premium. That is deliberate: sponsors want the right to refinance once the credit improves.
   5. A put works the other way. The investor can hand it back at par on a set date, usually protecting against a credit event or a change of control, so it is worth paying up for.
   6. The practical number: a callable high yield bond might yield 100 to 150 basis points more than a comparable bullet from the same issuer, and most of that gap is the option, not extra credit risk.

   Where candidates lose it

   Saying a callable bond yields more 'because it is riskier'. It is not more credit risky — it is the same issuer. The extra yield is the premium for an option you sold, and the concept the interviewer wants named is negative convexity.

   Expect next

   • What is negative convexity, and why does it matter here?
   • What is a make-whole call?
   • How does OAS help you compare the two?

Firm tags come from public, anonymous candidate reports on Wall Street Oasis: strong signal, not sworn testimony. Firms are named as the places a question was reported, not as partners of Fin Maverick. Answers are written for this page to show how to think out loud; they are not scripts to recite.