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Happy Friday, future bankers!

Hope everyone is doing well! Today we’re covering how to calculate the cost of equity, a time that you had to do a lot of planning, and Apple’s lawsuit with the Justice Department.

🚀 Let’s get into it.

🔢 Technical Question

How do you calculate the cost of equity?

The Cost of Equity is calculated using the Capital Asset Pricing Model (CAPM). The formula for CAPM is:

Expected Return = Risk Free Rate + Beta * (Expected Return of the Market - Risk Free Rate)

The intuition behind the CAPM is that it quantifies the expected return of an investment given its systematic risk (beta). The systematic risk is the risk inherent to the entire market, as opposed to unsystematic risk, which is specific to a particular company. In other words, the CAPM provides a theoretical estimate of the return an investor should expect for bearing a certain level of risk. The higher the beta, the higher the risk and, therefore, the higher the return required by investors. The risk-free rate represents the return on an investment with zero risk, while the difference between the expected return of the market and the risk free rate represents the risk premium, i.e., the return above the risk-free rate that the market requires for taking extra risk.

🗣 Behavioral Question

Tell me about a time that you accomplished something that took lots of planning?

When responding, consider the following best practices:

1. Use the STAR Method: Structure your response using the STAR method - Situation, Task, Action, and Result. This will help you provide a comprehensive and organized answer.

2. Situation and Task: Start by describing the situation you were in and the task you were assigned. Be specific about the context and your role in it.

3. Action: Discuss the steps you took to plan and execute the task. Highlight your strategic thinking, problem-solving skills, and ability to manage time and resources effectively.

4. Result: Conclude with the results of your actions. Quantify the impact if possible, such as the amount of money saved, the percentage increase in efficiency, or the improvement in process time.

5. Relevance to Investment Banking: Try to choose a situation that is relevant to investment banking. This could be a project where you analyzed financial data, made a financial model, or any task that required financial acumen and strategic planning.

6. Lessons Learned: If appropriate, discuss what you learned from the experience and how it has influenced your approach to similar tasks in the future.

Remember, the interviewer is interested in understanding your planning, execution, problem-solving skills, and learning agility. So, ensure your answer demonstrates these qualities effectively.

🗞 Industry News

🍎 Apple Gets Sued by Justice Department

Apple is now facing a shaky outlook. The company’s shares took a hit, falling the most since August, following a lawsuit filed by the Justice Department accusing Apple of antitrust violations. This has led to an 11% slide in Apple’s market value this year, erasing $337 billion from its market capitalization. The services sector, which includes the App Store and Apple Music, and is fed by more than two billion Apple devices, has been a significant growth driver for Apple. However, the lawsuit adds a layer of risk to this sector.

Investors are grappling with regulatory issues, weak sales in China, and concerns about Apple’s standing in artificial intelligence compared to its peers. With no clear catalysts for growth and the cancellation of a long-term effort to build an electric car, Apple’s future seems uncertain. The company’s second-quarter results, due for release in May, are expected to show a 4.5% drop in revenue. This would mark the fifth quarter of negative growth in the past six quarters. Despite these challenges, Apple’s shares still trade at 25 times estimated earnings, slightly above their 10-year average. However, the recent performance of the stock has left some investors questioning its value.

Read more about this story below.

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