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. 001What is a bond, in one sentence, and what do you need to know to price one?Bond mechanicsCorephone / first roundCorporate banking

   Say this

   A bond is a contractual loan cut into tradeable pieces: the issuer promises fixed coupons on a set schedule and the principal back at maturity. To price it you need five things — the cash flow schedule, the maturity, the discount rate, the day count, and where the claim sits in the capital structure.

   Then walk it

   1. The cash flows first: coupon rate times face, paid semi-annually for a US corporate, annually for most euro issues, plus the redemption of par at the end.
   2. Then the discount rate, which is the risk-free rate for that tenor plus a credit spread. Price is just the present value of those cash flows at that rate.
   3. Day count and settlement convention tell you the exact fraction of a period you are in, which is what generates accrued interest.
   4. Seniority and security matter because they drive the spread, not the mechanics. Same issuer, senior secured versus subordinated, can be 200 basis points apart.
   5. One number to anchor it: a 5-year bond with a 5 percent coupon priced at par yields 5 percent. Move the yield to 6 percent and the price falls to roughly 95.8. That is the whole instrument in one line.
   6. The honest limitation: this works for a plain bullet. The moment there is a call, a put or a floating coupon you are pricing an option too, and present value alone stops being enough.

   Where candidates lose it

   Describing a bond as 'debt that pays interest' and stopping. On a DCM desk the question is a warm-up that tests whether you think in cash flows. Name the schedule, the discount rate and the seniority, and say the price is a present value.

   Expect next

   • So what happens to the price if rates rise?
   • How is a floating rate note different?
   • Where does the credit spread come from?
2. 002Explain the relationship between a bond's price and its yield, and why it holds.Bond mechanicsCorephone / first roundFixed income asset management

   Say this

   They move in opposite directions, and it is mechanical rather than behavioural. The coupon is fixed in the contract, so the only way the market can change the return on that fixed stream is by changing what you pay for it.

   Then walk it

   1. Take a 5 percent coupon bond at par. Market yields go to 6 percent. Nobody will accept 5 dollars a year when new issues pay 6, so the price falls until 5 dollars on the lower price plus the pull to par equals a 6 percent return.
   2. Price is the present value of fixed cash flows. Raise the denominator and the numerator cannot respond, so the value falls. That is the entire mechanism.
   3. The relationship is convex, not linear. The price gain from a 100 basis point fall is bigger than the price loss from a 100 basis point rise, because you are discounting with one over one plus y.
   4. Longer maturity and lower coupon both make the price more sensitive, because more of the value sits further out in time.
   5. The one case where it looks broken: a floating rate note barely moves on rate changes, because its coupon resets. Its price moves on credit spread instead.
   6. So the honest version is that price moves inversely with the discount rate. For a fixed coupon that is the yield; for a floater it is the spread.

   Where candidates lose it

   Asserting the inverse relationship as a fact with no mechanism. Interviewers on a debt desk hear that all day. Walk the 5 percent coupon into a 6 percent market out loud, then add that the curve is convex rather than straight.

   Expect next

   • Why is the relationship convex rather than linear?
   • Which falls more for the same rate move, a 2-year or a 30-year?
   • Does a floating rate note behave the same way?
3. 003What is yield to maturity, and how is it different from current yield?Bond mechanicsCoretechnicalPIMCOFixed Income · Sydney · 2025

   Say this

   Yield to maturity is the single discount rate that sets the present value of all remaining cash flows equal to the current price. Current yield is just the annual coupon divided by the price, so it ignores the capital gain or loss you get by holding to par.

   Then walk it

   1. Current yield on a 6 percent coupon bond trading at 90 is 6.67 percent. That is the cash income only.
   2. Yield to maturity on the same bond is higher, maybe 8 percent, because you also collect the 10 points of pull to par over the remaining life. For a discount bond, YTM is above current yield; for a premium bond, below.
   3. YTM is an internal rate of return, so it embeds an assumption people forget: that every coupon is reinvested at the YTM itself. If reinvestment rates are lower, your realised return is lower than the quoted yield.
   4. It also assumes you hold to maturity and the issuer does not default or call. Yield to call on a callable bond is the same calculation run to the first call date, and you quote yield to worst, the lower of the two.
   5. Current yield is still used because it answers a real question for an income investor: what does this pay me per year. It is just not a return measure.
   6. The clean summary: current yield is income, YTM is total return under a strong reinvestment assumption, and yield to worst is what a desk actually quotes.

   Where candidates lose it

   Defining YTM correctly and never naming the reinvestment assumption. That assumption is the entire weakness of the measure, and stating it unprompted is what separates someone who has used the number from someone who has read about it.

   Expect next

   • So when is YTM a misleading measure of return?
   • What is yield to worst?
   • How would you compute realised return instead?

   Reported by candidates at PIMCO (Fixed Income, Sydney, 2025). Source: Wall Street Oasis.

4. 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?
5. 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?
6. 006Why does a bond trade at a premium or a discount to par?Bond mechanicsCorephone / first roundCorporate banking

   Say this

   Because its fixed coupon is no longer the market rate for that risk. Coupon above the market yield means the bond is worth more than par, so it trades at a premium; coupon below means a discount.

   Then walk it

   1. Two things can move the market yield: the risk-free curve and the issuer's credit spread. A bond can go to a discount because rates rose or because the credit deteriorated, and those are completely different stories.
   2. That distinction matters commercially. A high grade bond at 88 because the curve moved 200 basis points is a duration trade. The same price because the issuer got downgraded is a credit trade.
   3. Premium and discount amortise away. Regardless of the path, the price converges to par at maturity, which is the pull to par and is part of your yield.
   4. Tax and accounting consequences differ by jurisdiction. Original issue discount is often accreted into taxable income annually rather than taxed as a gain at the end, which is why some investors dislike deep discount paper.
   5. For an issuer this is why new issues are almost always priced at or very near par: you set the coupon to the market yield on pricing day, so there is nothing to explain to the board.
   6. The limitation: for a callable bond, a big premium is capped, because the issuer will simply call it at 100 or at the call price rather than let you keep a rich coupon.

   Where candidates lose it

   Answering only 'rates moved'. Half the time on a corporate bond it is the spread, not the curve. Separating rate-driven from credit-driven price moves is the answer a debt desk is listening for.

   Expect next

   • How would you tell the difference between a rate move and a credit move?
   • What is original issue discount?
   • Why do new issues price at par?
7. 007What is a zero-coupon bond, and why is its duration equal to its maturity?Bond mechanicsCoretechnicalFixed income asset management

   Say this

   A zero pays no coupon and redeems at par, so you buy it at a discount and the whole return is the accretion. Its duration equals its maturity because there is only one cash flow, and duration is the weighted average time to the cash flows.

   Then walk it

   1. Duration is a time-weighted average of when you get paid, weighted by present value. One payment at year 10 gives a weighted average of exactly 10.
   2. Any coupon bond of the same maturity has duration below its maturity, because some cash arrives early. A 10-year 5 percent coupon bond has Macaulay duration around 7.8.
   3. So zeros are the most rate-sensitive instrument at a given maturity, which is exactly why liability-driven investors and pension funds buy them: maximum duration per unit of capital.
   4. They also have no reinvestment risk, because there are no coupons to reinvest. The quoted yield is the realised yield if you hold to maturity, which is unusual and valuable.
   5. The price maths: a 10-year zero at a 5 percent yield costs about 61. Move the yield to 4 percent and it goes to about 68, an 11 percent gain from 100 basis points. That is the duration working.
   6. The downside for a taxable investor: many jurisdictions tax the imputed accretion each year even though no cash arrives, so zeros are usually held in tax-exempt accounts.

   Where candidates lose it

   Saying 'because there is only one cash flow' without ever defining duration as a weighted average time. The definition is the answer; the single cash flow is just the special case that makes it obvious.

   Expect next

   • What is the modified duration of that 10-year zero?
   • Why do pension funds like zeros?
   • What is a STRIP?
8. 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?
9. 009What is a floating rate note, and when would an issuer prefer one over a fixed coupon?Bond mechanicsCoretechnicalCorporate bankingSyndicate desks

   Say this

   A floater pays a reference rate plus a fixed spread, resetting every quarter, so its coupon tracks the market. An issuer prefers it when it expects rates to fall, when it wants to match floating-rate assets, or when the floating investor base is where the demand actually is.

   Then walk it

   1. Structure: three-month SOFR plus, say, 90 basis points, reset quarterly, paid quarterly. The spread is fixed for life; the base rate is not.
   2. Because the coupon resets, the price stays close to par and rate duration is tiny — roughly the time to the next reset, so about a quarter of a year. But spread duration is full maturity, so it still carries credit risk.
   3. Who issues them: banks and financials, because their loan books are floating and they want to match; and any issuer targeting money market funds and liability-matched buyers who cannot take duration.
   4. Who buys them: funds that want credit exposure without rate risk. In a rising rate environment demand for floaters spikes, and in 2022 to 2023 floater and loan funds took large inflows for exactly that reason.
   5. The issuer can also get to the same place synthetically: issue fixed and swap to floating. Most large issuers do that, choosing the format where the investor demand is best and swapping into the exposure they want.
   6. The limitation: a floater gives the issuer rate uncertainty. If rates rise sharply, the interest bill rises with them, which is precisely what caught out heavily floating-rate leveraged borrowers when policy rates went up 500 basis points.

   Where candidates lose it

   Saying a floater has no duration. It has almost no rate duration but full spread duration, and if the issuer's credit deteriorates the floater falls just like the fixed bond. Confusing the two durations is the classic error on this question.

   Expect next

   • What is the duration of a floater, precisely?
   • How does an issuer swap fixed to floating?
   • Why did loan funds outperform in 2022?
10. 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?

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.