Capital One Analyst interview questions

Case Interview had too many complexities.

Case example: Analyzing an affinity credit card (ex. special card only available to members of a specific group) Facts: 1) average card balance is $1000 2) each card has a rate of 15% 3) membership fee is $20 per card 4) loss rate is 3% 5) $25 operating cost per card 6) $10 affiliation fee per card (cost to the group for access to members) 7) 6.5% cost of funds Q1: How much profit is generated per card? A1: Total Revenue = ($1000 * 15%) + $20 = $170 Total Expense = (3% * 1000) + $25 + $10 + ($1000 * 6.5%) = $130 Total Profit = $40 Q2: The 3% loss rate can either mean either 3% of the outstanding balance defaults or 3% of the borrowers default on their entire balance. If the average balance is increased to $2000, what happens to the loss? A2: The loss doubles either way you calculate it. Q3: Is a borrower with a low balance more or less likely to default then a borrower with a high balance? A3: Less likely. Borrowers tend to charge up a balance before they default. Q4: Would the affilated group ever want to puchase the accounts from the financial institution? A4: The most likely scenario is that they want to purchase the accounts in order to turn around and sell them to another financial institution. Q5: If the affilated group offered $20 per account to purchase from the financial institution, what would thier profit be? (assume that we are only talking about 1 year) A5: Current profit per account is $40 minus the cost of $20 per account to purchase and eliminate the affiliation fee of $10 per account. Profit after the purchase would be $30. Q6: What could the financial institution do to convince the affiliated group not to want to purchase? A6: Increase the affiliation fee Q7: What is the most the financial institution would be willing to increase the affiliation fee to? A7: Max profit is the current level of $40 and minimum is the profit if sold to the affiliation at $20. $40 - $20 = $20. They could only increase the fee by $20 for new affiliation fee of $30. That is all I can recall from memory. There wasn't a lot more. My advice is don't over-think things. http://www.capitalone.com/careers/hiring/sample_step1.php?linkid=WWW_Z_Z_Z_CARHIBC_C1_01_T_CARHISA1 http://www.joinbain.com/apply-to-bain/interview-preparation/default.asp