Let’s face it – getting into private equity industry is one of the toughest nuts to crack. The grueling process of getting into a private equity firm starts with a challenging interview where partners or someone at the mid-level will grill you with brainteasers. If you aim to become one of those private equity professionals, you must crack your way through these brainteasers.
These are questions that check your mental math skills. While mental math skills are not so important in private equity, but hedge funds need people who can do quick math. Private equity investment professionals require good math skills as well as soft skills they often involve themselves in financial statements, building financial models, investigating market and trends, and other tasks.
Most of the brainteasers asked in a PE/ hedge fund interview are questions related to probability or statistics. These questions will test how quickly you can perform math. Accuracy is paramount in answering these questions. However, interviewers understand that unless you are frequently brushing up your mental math skill, it would be a challenge to answer those questions. What’s more important, therefore, is following up the answer with an approach. Even if you answer wrong, explaining how you arrived at the answer will give you bonus points from the interviewer.
To give you a gist of the questions asked in a private equity/hedge fund interview, here are a few examples.
Q1. What is the probability of drawing two sevens in a deck of cards?
There are four 7s in a deck of 52 cards. So the probability of drawing 7 in the first draw is 4/52, which equals 1/13. Then, there will be three 7s in a deck of 51 cards. The probability of drawing 7 in the second draw will be 3/51, which is equal to 1/17. The cumulative probability would be 1/13 multiplied by 1/17, which yields 1/221.
Q2. Suppose you are paid an equivalent amount of dollars to the number you roll. For instance, if you roll 5, you will be paid $5. What is the amount you are willing to pay if you roll a fair six-sided dice?
The amount of return will be the probability of each outcome multiplied by the outcome. The average of each outcome which has equal probabilities is 3.5.
Q3. A closet has three bulbs and three switches outside the roof. If you can enter only once in the closet. How will you determine which switch to turn on?
Turn on two switches – A and B. Once you enter the room turn off switch B. Touch the bulbs and you will feel warm. The bulb that feels warm is controlled by switch B. The
the third bulb which is off and cold
is controlled by switch C.
Q4. You are given a length of rope that can be lit to burn. However, the rope burns unevenly such that if you burn half the rope it would not indicate that half-hour has passed.
Burn both sides of the rope. One side will burn faster than the other such that when they meet an equivalent of half the time has passed.
Q5. Following up on the last question, if you’re given two ropes. How will you measure 45 minutes?
To measure 45 minutes, burn one rope on both ends like in the previous scenario. Light the second rope simultaneously. When the first rope burns out, a half-hour has passed. The second rope only has 30 minutes on it. Quickly burn the second end of the rope. When the fire meets at both ends again, it will be fifteen minutes.
Q6. You have a 10X10X10 cube made of 1X1X1 cubes. The sides of the larger cube are completely painted. How many cubes are not painted?
First, realize that there are 1000 cubes. The number of cubes that don’t have paint on them are 8X8X8, which equals 512 cubes. So the number of cubes that don’t have paint on them is 1000-512, which equals 488.
Power proof your way into a private equity firm
Private equity jobs are hard to get. One of the ways you can ease your way into a private equity firm is by getting a private equity certification. Chartered Private Equity Professional (CPEP) from the United States Private Equity is a globally recognized high –value certification that can ease your way into the private equity industry. The certification demonstrates your proficiency in the technical and soft skills required to excel as a private equity investment professional.