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. 015Two bonds have the same maturity but different coupons. Which has the longer duration, and why?Duration and convexityIntermediatetechnicalFixed income asset management

   Say this

   The lower coupon bond. Duration is the present-value-weighted average time to the cash flows, and a low coupon puts proportionally more of the value in the final principal payment, which is the most distant cash flow.

   Then walk it

   1. Think of the weights. A 10-year 8 percent bond returns a lot of cash early, so the weighted average time is pulled forward. A 10-year 2 percent bond has almost all its value in the redemption at year 10.
   2. The limiting case proves it: a zero-coupon bond has no early cash flows at all, so its duration equals its maturity, which is the maximum possible for that tenor.
   3. Numbers: at a 5 percent yield, a 10-year 8 percent coupon bond has Macaulay duration around 7.1, a 4 percent coupon around 7.9, and the zero is 10.0.
   4. The same logic explains the other two drivers. Longer maturity extends the weighting, and a lower yield reduces the discounting of distant cash flows, so both lengthen duration.
   5. The practical consequence: low-coupon long-dated bonds issued in the zero-rate era carry enormous duration, which is why the 2022 rate move produced 40 percent-plus drawdowns on some sovereign long bonds.
   6. One qualification: this holds for bullets. A callable low-coupon bond may have shorter effective duration than the maths suggests, because the option truncates it.

   Where candidates lose it

   Guessing. It is a two-way question and half of candidates answer higher coupon because they think more cash flow means more sensitivity. Go back to the weighted-average-time definition and the zero-coupon limiting case, and the answer is forced.

   Expect next

   • So what is the maximum duration a 10-year bond can have?
   • What if one of them is callable?
   • Why did long sovereign bonds fall so hard in 2022?
2. 016A bond has modified duration of 7 and convexity of 60. Rates rise 150 basis points. What happens to the price, and how wrong is the duration-only answer?Duration and convexityHardtechnicalFixed income asset managementSyndicate desks

   Say this

   Duration alone says minus 10.5 percent. Convexity gives back 0.675 percent, so the estimate is about minus 9.8 percent. Duration on its own overstates the loss by roughly 68 basis points of price, and the error grows with the square of the move.

   Then walk it

   1. First term: minus duration times the yield change, so minus 7 times 0.015, which is minus 10.5 percent.
   2. Second term: half times convexity times the change squared, so 0.5 times 60 times 0.015 squared. That is 0.5 times 60 times 0.000225, which is 0.00675, or plus 0.675 percent.
   3. Net estimate about minus 9.83 percent. On 100 million of face at par that is a 9.8 million loss rather than 10.5 million — a 675,000 dollar difference from one term.
   4. Note the asymmetry: if rates had fallen 150 basis points, you would gain 10.5 plus 0.675, so 11.17 percent. Convexity helps in both directions, which is why it has value.
   5. Scale it: at a 50 basis point move the convexity term is worth only 7.5 basis points and you can ignore it. At 300 basis points it is 2.7 percent and you cannot. The error is quadratic in the move.
   6. The caveat to state: this is still a two-term Taylor expansion off a single yield. It assumes a parallel shift in the curve, and for a real portfolio you would run key-rate durations instead, because curves twist rather than shift.

   Where candidates lose it

   Dropping the one-half, or forgetting to square the yield move. Both are common and both produce an answer that is wildly wrong. Write the formula out loud before you compute, and state the units — decimals, not percentages — before you multiply.

   Expect next

   • Now do it for a 300 basis point move.
   • What if the curve steepens rather than shifts?
   • What are key rate durations?

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.