Calculus needed in I-Banking?

If you actually knew what investment banking was, you'd know the answer to your question.

An "investment banker" (and it's helpful that you use such a broad term, but I'll take it to mean M&A/Corp. Fin banker) helps companies restructure debt, raise capital and engage in acquisitions and divestitures. To do so, they make lots of pretty presentations on PowerPoint, talk to CEOs/COOs/CFOs, and run Excel models using a company's financial statements as inputs.

I'm not quite sure how to take the derivative of a company's EBITDA, or what good that would do. Do you?

i wonder if they people will one day use calculus in investment banking

say for example you are projecting a company's fcfs and instead of the usual growth at 5% or whatever you deal with continuous changing growth rates... find some log or exponential function and model the revenue growth rates accordingly... could also do some constrained optimization problems if you were fancy. hey they say wall street is getting more quantitative right?

I was thinking about that, and as another response to the kid's question: It doesn't hurt to know more about something than you have to.

hmmm......maybe.....but why not just randomly assign your growth rates based on your common sense and research? I've only worked at a PE fund before, but my boss(who also used to work in Lehman IB) bluntly told me "projections are all bullshit, the point of the model is to figure out WHY a company would or wouldn't make money under certain scenarios and what ballpark ranges you can have to be successful, not the exact percentage point revenue will grow by"

I guess for sell-side banking it could be a neat bell-and-whistle thing....but I'll be in a better question to comment after this summer whether it'd still be a load of bollocks.

You can write whatever fancy quant formula you want, when it comes to corporate finance, experience beats nothing. Those CFOs that know their company will grow by X%, because they worked in the industry for 20 years, will beat any fancy statistical data. Same goes for the MDs in the bank.

On the other hand knowing calculus helps in many ways, and in general lets you understand graphs, and how things like "beta" and CAPM, make sense alot easier.

No you don't need Calculus...

Every mathematical skill you need for IBD was learned by 8th grade...

I'm going to go ahead and lay this on the table, if you cannot intelligently discuss the rate of change for a function at a specific point(derive), or it's total change (integrate), using a litany of techniques, you should learn how. Beyond the application to banking, which I would argue is palpable given that without calculus a graph is something you make in grade school to count the number of people whose favorite color is blue.... or the number of people who prefer one politician over another, hey look political science!

Take stat. Nothing too fancy or too boring (econometrics) but a basic intro to stat class will open your eyes. Since most require calc as a pre-rec, take the plunge.

If you haven't done calc then you probably do not have the quantitative skills necessary, not to say that you use calc. Honestly, calc is the most fundamental mathematics and its a shame that in the US it is considered "advanced" in some high schools (i.e. pubic schools where kids are not expected to take it as you are in any decent prep school).

No, you don't need a Calc for banking.

If you go to a target, then you are probably smart enough to crank out models. Models don't require calc. All you need is Excel and algebra I.

Don't take it if you don't need to take it. people talk about how banking is quantitative and all...quantitative doesn't mean you need to know calc, lin alg, diff eq...etc. it just means that you need to be smart with numbers. if you have a high score on the math portion of your SAT1, then that's enough.

But, if you want an MBA degree...you might want to take a Calc class.

Best, SoulSearching

Question: Wouldn't doing calc be in your favour if you ever plan to sit the GMAT one day?

Calculus has zero relevance for banking, private equity, or fundamental investing. I do not associate calculus with analytical ability.

Having a head for numbers and being able to relate quantitative and business/qualitative factors is far more relevant to investment banking. Not that the job requires rigorous analytical skills.

You don't need Calc for banking or GMAT.

You need Calc for certain classes (econ, finance, sciences...) You need Calc for graudate degreeds (MBA etc.)

Perhaps quant shops require high level math skills...but not banking...

Best, SoulSearching

What if I eventually want to move on to a hedge fund? Should I go up to multivariable calc (or maybe even higher)? Thanks for all the help.

Dude, you're all over the place. Banking, consulting, hedge funds...

I'm sorry, I'm sorry. I've been lurking the boards, but I'm still kind of new to the whole thing.

My very basic plan involves getting a gig at either an i-bank or a consulting firm right after college. After three to four years, I would like to either go to business school or move on to a hedge fund.

if you can understand the theories behind calculus, then understanding financial and economic theories becomes easier. although they are only somewhat related, the calc acts as more of a mind excersise.

if there is a word problem that can be solved using calc, some analytical thought has to be put into solving it. if you can speak intellectually about this stuff then you will easily nail finance questions. 4 years of calc is why lots of engineers do well in MBA programs and i banks.

I second that.

The theory behind calc is not really that challenging. I don't consider myself to be quantative. I did social sciences but in high school and college I LOVED my calc classes. Like in a huge nerdy way. I think it's really interesting and does have a lot of relevance in econ etc that made the subject a lot more interesting to me.

Anyway - I'm in S&T and I never ever ever use calc. I guess it's good for you to understand how gamma relates to delta for example - but most of my superiors don't really even understand greeks anyway.