Hedge Funds
Prepalyst has 21 credit interview questions with model answers, covering recovery analysis, capital structure relative value and covenant leakage. Every question is graded on technical accuracy, completeness and interview communication. Practice is free.
Asked to ensure candidates do not quote yield without thinking about price and recovery.
A distressed bond trades at 60 and yields 18%. Why might the yield be misleading?
A basic trading-desk question used to check whether a candidate understands what cash changes hands on a bond trade.
A 6.0% annual-coupon bond pays semi-annually on 30 June and 31 December. It trades on 31 March at a clean price of 92.00. Assume 90 days have elapsed in a 180-day coupon period and par is 100. What is the dirty price,…
A simple relative-value question for hedge fund credit seats.
Explain a long-short credit pair trade. Why use it instead of buying one cheap bond outright?
A basic but important question for anyone pitching bonds or CDS.
A corporate bond trades 400bp over Treasuries. What does that spread compensate investors for?
A first-round credit hedge fund question before moving into a specific pitch.
What makes a good credit investment thesis different from a good equity thesis?
Funds ask this after a company-level credit view to test instrument selection.
You like a company's credit. How do you decide whether to buy the loan, bond, CDS, or equity?
Credit hedge fund interviews use this to test whether a candidate recognises that creditor downside depends on documents as well as EBITDA.
A borrower has stable EBITDA and adequate liquidity, but its bond indenture permits large dividends to the sponsor. Why should a credit investor care, and what would you review before buying the bond?
Tests whether a candidate can avoid overstating carry and upside in a high-yield bond pitch.
A bond purchased at 102 can be called at 100 in one year or mature at 100 in five years. Its coupon is 8%. Why should you assess yield to worst rather than simply quote its yield to maturity, and what does the call…
Asked because cheap credit can remain cheap for years without a catalyst.
A bond looks cheap at 700bp spread. What catalysts could make the spread tighten?
A product question for hedge funds trading credit through both bonds and derivatives.
What is the CDS-cash basis and why can it become negative or positive?
A fallen-angel scenario that tests technicals and fundamentals together.
An investment-grade issuer is downgraded to high yield. How do you analyse the trade?
A relative-value interview question for a credit fund that trades both cash bonds and CDS.
An issuer's one-year CDS trades at 1,200bp while five-year CDS trades at 750bp. What is the market signalling, and how would you decide whether to buy near-term protection, sell it, or express the view in cash bonds?
A quantitative recovery question for credit hedge fund interviews.
A company has $200m secured debt and $300m senior unsecured notes. Reorganisation value is $350m before fees. Estimate unsecured recovery.
Credit funds ask this to test bearish expression without equity-short language.
You think a company's credit is deteriorating but default is not imminent. How could you express the short and what can go wrong?
A claim-selection case used by credit funds to test whether an analyst maps who actually owns assets and cash flow.
A parent holding company has a $300m bond. Its operating subsidiary owns all assets, generates $80m of EBITDA, and has $400m of secured debt. The holdco owns only the subsidiary's equity. Explain why the holdco bond is…
Credit hedge fund interviews test whether you can think across the whole structure.
A company's bonds trade at 70 cents while the equity still has a $2bn market cap. Is there a trade? Walk me through the analysis.
An offer-ready relative-value case for a credit hedge fund analyst seat.
A company has a 2027 secured note at 88 with a 10% coupon and a 2030 secured note at 82 with an 8% coupon. You expect the company to refinance its 2027 maturity within six months, but you are uncertain whether leverage…
A classic strategy that tests whether you can decompose a hybrid instrument.
Explain convertible arbitrage. What are you actually long, and what happened to the strategy in 2008?
Credit funds test whether you can compare instruments rather than just analyse a company.
A company's secured bonds yield 8% and its unsecured bonds yield 14%. Is the unsecured cheap? Walk me through the analysis.
A harder relative-value question linking credit, equity and catalysts.
A company's secured bonds trade at 85 while the equity still implies meaningful value. How could a credit fund think about capital structure arbitrage?
A modern credit question on why documentation can dominate enterprise value.
What is liability management risk and how does it affect a credit hedge fund investment?
Write your answer, get it graded on technical accuracy, completeness and communication, and see exactly which mechanic you missed.
Firm names indicate where a question type is commonly reported in interviews. They are not sourced from, endorsed by, or affiliated with the firms named.