Series 7 – General Securities Representative Interview Questions
While some interviewers have their own style of questioning, the majority of job interviews follow a standard set of questions and responses (including some of the most often-asked behavioral interview questions). Here are some of the most often asked interview questions and the best answers. Let’s start with some expert tips on how to prepare for the Series 7 – General Securities Representative Interview right now:
1.What exactly is the “Over the Counter Market”?
The over-the-counter market is a decentralize market with no physical location in which market traders or participants deal with one another over various communication means such as phone, e-mail, and proprietary computer trading systems.
2. What do you mean by “private equity transactions”?
A private equity transaction occurs when private equity firms make investments in certain target enterprises. A target firm has the potential to do well in a short period.
3. What exactly is equity funding?
Equity financing is the payment for an insurance policy by a mutual fund. The value of the mutual fund shares pays the insurance policy costs, allowing individual investors to reap the benefits of a regular mutual fund investment.
4. What is the weighted average rating factor?
The weighted average rating factor is a method of assessing, analyzing, and presenting the total risk of an investment portfolio.
5. How can you tell if a stock is costly by looking at its price?
The stock price cannot be judged only by its price; a $200 stock might be inexpensive if its profits prospects are strong enough, but a $10 stock can be costly if earnings potential is poor. The P/E ratio is an accurate indicator of a stock’s valuation.
6. How would you forecast revenues?
Making your model realistic or keeping it basic and resilient is the two model construction approaches.
The first principles approach identifies numerous approaches for modelling revenues with great depth and precision. There are other industry-specific concerns that must be consider. When estimating revenue in the retail business, for example, you anticipate expansion rate and income per square meter. Further, when projecting revenue in the telecommunications business, you anticipate market size and utilise current market share as well as competition information. When projecting revenue in the service industry, you estimate headcount and utilise income per employee trends.
The quick and simple approach to robust models, on the other hand, shows how to model revenues in a much more uncomplicated manner, with the consequence that the model will be simpler and easier to use. In this method, you forecast future growth rates based on previous data and patterns.
7.Do you understand the terms ‘risk’ and ‘return’?
The benefit that an investor will obtain from investing in security is referred to as a return. The possibility that the predicted rewards would not materialise is referred to as risk. A firm may, for example, issue a bond to raise funds from an investor. A bond is a debt security, meaning it symbolizes a company’s borrowing.
The security will be granted for a set period of time, after which the investor will be refunded the amount borrowed. The return will be in the form of interest, which will be paid to the investor on a regular basis at the rate and frequency stipulated in the security.
8. In the securities markets, what do stock brokers and sub-brokers do?
Stock brokers are members of stock exchanges who are registered to trade. They facilitate investor purchase and sell transactions on stock exchanges. On stock exchanges, all secondary market transactions must be handle through register brokers.
Sub-brokers assist in reaching a larger number of investors with the services of brokers. Several brokers offer their clients research, analysis, and recommendations on which securities to purchase and sell. Brokers may also offer their clients screen-based computerized trading of securities or take orders over the phone. Brokers are compensate for their services with a commission.
9. What exactly is an asset management firm? What are portfolio managers’ responsibilities?
Asset management firms and portfolio managers are investment experts who assist in selecting and administering a securities portfolio. Asset management firms are allow to sell securities (known as units) that represent participation in a money pool that is use to construct the portfolio. Portfolio managers are not permit to combine the money collect from investors and do not provide any security.
In the creation and management of a portfolio, they work on behalf of the investor. Both asset managers and portfolio managers offer a fee to the investor for their services, and they may work with other security market intermediaries including brokers, registrars, and custodians to complete their tasks.
10. In the securities markets, what role do merchant bankers play?
Merchant bankers, sometimes known as issue managers, investment bankers, or lead managers, assist issuers in gaining access to the securities market. They assess capital requirements, design a suitable instrument, participate in pricing, and oversee the entire issuance process until the securities are issue and listed on a public exchange. They manage the issue process with the help of various intermediaries such as registrars, brokers, bankers, underwriters, and credit rating organisations.
11. What are Underwriters’ Roles in the Securities Markets?
Underwriters are primary market professionals who guarantee to buy the portion of security offering that investors may not buy. In the primary market, they provide issuers with the assurance that if the securities being offer do not generate the desire demand, the underwriters will step in and acquire the securities. Primary dealers are the government bond market’s expert underwriters.
12. What is credit rating agencies’ role in the securities markets?
Credit rating firms assess debt security to provide a professional judgment on the issuer’s capacity to meet the security’s obligations for interest payment and principal repayment. They employ rating symbols to rate debt securities, allowing investors to estimate a security’s default risk.
In creating and managing a portfolio, they work on behalf of the investor. Both asset managers and portfolio managers offer a fee to the investor for their services, and they may work with other security market intermediaries, including brokers, registrars, and custodians, to complete their tasks.
13. What is an investment adviser’s role?
Investment advisers engage with investors to help them choose which securities to buy depending on their needs, time horizon return expectations, and risk tolerance. They may also be involved in creating financial plans for investors, in which they identify the goals for which they need to save money and recommend appropriate investment techniques to help them achieve those goals.
14. Are you familiar with Zero-Coupon Bonds?
During the bond’s duration, a zero-coupon bond does not pay any coupons. The bond is sold at a discount to its face value and can be redeem at that price. The difference between the face value and the discount issue price is the effective interest earn. A zero-coupon bond with a longer maturity is sold for a fraction of its face value. Deep discount bonds are another name for these types of bonds.
15. Are you familiar with Floating Rate Bonds?
Floating rate bonds have an interest rate that is not fix but is re-set regularly based on a pre-determined benchmark rate. A corporation could, for example, issue a 5-year variable rate bond with rates adjusted semi-annually at 50 basis points higher than the 1-year yield on central government assets. The 1-year benchmark rate on government securities is every six months using current market values. This benchmark rate + 50 basis points is the coupon rate the corporation will pay for the next six months.
16. What is the meaning of time value of money?
A rupee in one’s possession today is worth more than a rupee earned in the future. Consider the difference between receiving Rs.1000 today and receiving it after two years. If today’s Rs.1000 is invest in a two-year bank deposit generating 8% simple interest, it will be worth Rs.1080 at the end of two years (principal 1000 + interest 80). As a result, today’s Rs.1000 is worth more than tomorrow’s Rs.1000. The return obtain by investing presently available funds over monies received in the future determines the worth of currently available funds over funds received in the future.
17. What is yield to maturity, and what does it mean?
The Yield to Maturity (YTM) of a bond is the rate that correlates the present value of future cash flows from the bond with the current price of the bond. The YTM changes in tandem with the bond price. As a result, YTM is the implied discount rate in the bond value at a given moment in time. The YTM method is a frequently use and popular method for calculating the return on a bond investment. In the debt market, YTM is commonly use in yield quotations.
18. Are you familiar with “follow-on public offer” (FPO)?
A follow-on public offering is when an issuer has already completed an initial public offering (IPO) and now wants to sell further securities to the public. A corporation can issue more shares if the total amount of the proposed issue plus all other issues in a fiscal year does not exceed 5 times the pre-issue net value.
When a firm needs more capital to expand or restructure its capital structure by retiring debt, it raises equity capital through a follow-on public offering.
19. Do you know what a share rights issue is?
When a corporation issues new shares, it has an impact on current shareholders since their proportionate stake in the firm’s share capital is dilute. For example, a corporation may have 10 lakhs Rs.10 shares, totaling Rs. 1 crore in issued and paid-up capital. Because the issued and paid-up capital has doubled, if it issues another 10 lakh shares to expand its capital, the proportion held by existing shareholders will drop by half. Dilution of holdings is the term for this.
To avoid this, under Section 81 of the Firm’s Act, a company that intends to raise extra capital by issuing shares must first offer them to existing shareholders. A rights issue is a type of stock offering.
20. What is a ‘green shoe option,’ and what does it mean?
Companies employ the Green Shoe Option (GSO) in a public offering to provide price stability in the secondary market soon after listing. A corporation that chooses the Green Shoe option can allot additional shares to the general public who have subscribed in the issuance up to 15% of the issue size. The revenues from this additional allocation will be held in a separate bank account and use to purchase shares on secondary markets once the shares have been list, in case the price falls below the issue price. The price of the shares is projecte to be support due to this.
21. Are you familiar with the term “mutual fund”?
A mutual fund is a vehicle for raising investors’ funds to invest in various markets and assets in accordance with the mutual fund’s and investors’ agreed-upon investment objectives. In other words, a small investor can benefit from professional fund management services provided by an asset management firm by investing in a mutual fund.
22. Are you familiar with hybrid funds?
Hybrid funds have a mix of equity and debt securities in their portfolio. The proportion of the portfolio between the two asset classes will be determine by the fund’s investment objective. A hybrid fund is a combination of debt and an equity fund. The allocation between equity and debt and the relative performance of these asset classes will determine the risk in a hybrid fund. The greater the proportion of equity in the portfolio, the higher the overall risk.
23. Are you familiar with Equity Linked Savings Schemes (ELSS)?
- Firstly, equity Linked Savings Schemes (ELSS) are mutual funds that offer tax advantages in deductions under section 80 (c) for the amount invested.
- Secondly, the maximum amount that can be claimed as a deduction is Rs. one lakh.
- At least 80% of an ELSS’s investment portfolio must be made up of equity securities.
- The investments made to receive the tax benefit are subject to a three-year lock-in period.
24. Do you have any idea what Gold Exchange Traded Funds are?
ETFs containing gold as the underlying asset is known as gold exchange-traded funds (ETFs). The following are some of the characteristics:
- Firstly, It allows you to keep gold in an electronic rather than physical form.
- Typically, one gram of gold is one unit of ETF.
- Further, the price of the units will follow the price of gold.
25. Are you familiar with international funds in Series 7 – General Securities Representative?
Securities listed on marketplaces outside of India are purchase by international funds. The regulator SEBI specifies the types of assets that the fund can invest in, which include foreign-listed equities and debt instruments, units of mutual funds and ETFs issued overseas, and ADRs and GDRs of Indian firms listed abroad. Part of the funds’ assets might be investe in Indian markets.
26. Do you know what a Fund Of Funds (fofs) is in Series 7 – General Securities Representative?
FoFs is a fund that invests in other funds. The FoF selects and invests in funds that match its investing objectives. Its investment portfolio is made up of other funds rather than securities. The majority of FoFs invest in mutual fund schemes from the same company. Some FoFs consider schemes from various fund firms for inclusion in their portfolios if they fit the FoF’s investment objective.
27. In an unlevered DCF analysis, what is the proper discount rate to use in Series 7 – General Securities Representative?
Since the free cash flows in an unlever DCF analysis are pre-debt (i.e., think of unlever cash flows as the company’s cash flows if it didn’t have any debt – no interest expense, and no tax benefit from that interest expense), the cost of the cash flows is related to both the lenders and the equity providers of capital. As a result, the discount rate is the weighted average cost of capital for all capital suppliers (both debt and equity).
The cost of debt is easily identifiable in the market as the yield on debt with comparable risk, whereas the cost of equity is more difficult to determine.
The capital asset pricing model (CAPM) is commonly use to assess the cost of equity, which ties the projected return of equity to its sensitivity to the broader market
28. Is the cost of debt or equity usually higher in Series 7 – General Securities Representative?
Since the cost of borrowing debt (interest expenditure) is tax-deductible, the cost of equity is higher than that of debt, generating a tax shield. Furthermore, unlike lenders, equity investors are not promise constant payments and are last in line at liquidation; therefore, the cost of equity is often higher.
29. How would you calculate a company’s beta in Series 7 – General Securities Representative?
Since of estimation flaws, calculating raw betas from past returns or even predicted betas is an imperfect measurement of future beta (i.e. standard errors create a large potential range for beta). As a result, we suggest employing a beta from the industry. Of course, because different rates of leverage affect comparable company betas, we need unlever the betas of these comparable companies as follows:
Unlevered = (Levered) / [1+ (Debt/Equity) (1-T)] Unlevered = (Levered) / [1+ (Debt/Equity) (1-T)]After you’ve generated an average unlever beta, apply it to the capital structure of the target company:
(Unlevered) x [1+(Debt/Equity) (1-T)] = Levered
30. For a revenue multiple, what is the acceptable numerator?
Enterprise value is the answer. The question assesses your knowledge of the differences between equity and enterprise value and their implications for multiples. Enterprise value – Net Debt (where net debt equals gross debt and debt equivalents – excess cash) = Equity value.
Since the denominator is an unlever (pre-debt) measure of profitability, enterprise value is use as the numerator in EBIT, EBITDA, unlever cash flow, and revenue multiples. Since the denominator is levered – or post-debt – EPS, after-tax cash flows, and a book value of equity all have equity value as the numerator.
