The equity market is a volatile beast, and it's vital to have an idea of what you're getting into if you want to be successful. That means knowing the terminology, understanding the different types of securities, and answering questions about the industry.
This blog post covers essential interview questions for equity analysts that will help get your foot in the door with any company.
- What is equity?
Equity is merely the value of an asset, less any liabilities.
- What are common stock, preferred stock, and convertible bonds?
These are all securities that represent ownership in a company.
- Common stock is what you commonly think of when you think of owning shares in a company.
- Preferred stock is like common stock, but it has different economic rights.
- Convertible bonds are bonds that get converted into shares of the company.
- What is market capitalization? Does it change much?
Market capitalization is the current price of a company's shares multiplied by the number of shares on the market. If 100,000 shares are outstanding and the cost per share is $10, the market cap would be $1,000,000—the market cap changes with the changing price of shares.
- What is a stock split?
When a firm increases the number of shares outstanding by a certain ratio is known as a stock split.
- What is an IPO?
When a company first opens, share offerings to the general public is known as IPO.
- What is an acquisition?
An acquisition means one company purchases another. If Company A buys Company B, they will often combine their names, e.g., "Company AB."
- What is the money market?
The money market is short-term debt securities issued by banks and corporations.
- What is a credit rating?
A credit rating means assessing the ability of an entity to pay principal and interest on its debt. It gets usually measured on a 1-10 scale, with 10 being the highest credit quality.
- What are the types of orders?
There are many different types of orders, depending on what you want to do. Some examples include limit order, stop order, market order, and stop-limit order.
- What is the difference between short selling and naked short selling?
Naked short selling occurs when there is no agreed-upon date to return the borrowed shares, and it gets used to manipulate a company's share price to profit.
- What is the current yield?
The current yield calculates an investment's annual dividend income per share divided by the current price per share.
- What is the price-earnings ratio?
The price-earnings ratio (P/E) is a number that measures how much investors are willing to pay for each dollar of earnings.
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