Lehman I-Banking No Brainteasers?!

Lehman is all about their 5 key qualities. They try to get you to sell yourself based on these qualities and I've never heard of anyone getting a brain-teaser. But you had better have some good stories about yourself and your teams.

I got two brainteasers in my superday

oh yeah both from vps if that makes any difference

Also got a brainteaser in my superday.

I received one question from Lehman that I definitely didn't consider a brainteaser...

1. You have a $10,000 credit card balance at 11% APR. You also have $10,000 in an index fund that tracks the S&P 500. Talk me through your decision on whether to sell the index fund ot pay off your credit card balance.

if you think you are going to earn more than 11% then don't pay it off, if you think you are going to earn less, pay it off

Yea... you'd need the distribution of yearly stock market returns, when you'd need to get more credit, etc.

mean return doesn't come close to being enough information, same w/ 95% interval

When it comes to questions like this, what is the best way to approach it? Is it to list off the various types of scenarios that there are and then say "then you'd need to calculate it", like I did earlier? Or is it to say there are way too many variables in this, list them all of, and say you need this type of data before making an informed decision? Or is there another, better way to answer the question?

You also have to adjust for the risk on the index fund (the 11% on the credit card is a sure thing). I said that the 11% credit card and the risk-adjusted S&P would be close enough to warrant a subjective look at the S&P. Told my interviewer that China looked a bit overdone and that I wasn't comfortable with the VIX going crazy the way it was at the time. Said I was short the S&P and chose to sell the index to pay off the credit card. I got lucky because the next week the S&P got absolutely crushed (the Feb 27 China mini-crash). The interviewer also made me pick a stock, my pick went up 15%+ over the next two weeks. Hilarious.

Don't forget that you pay taxes the gains from your S&P 500 index fund - depending on the holding period that is anywhere from 15 - 40% paid to the government - meaning your return would have to be between 13 - 18% before taxes.

You most certainly get both guesstimates and brainteasers at Lehman, the only thing they didnt do was make me sit a math test.

RIP Lehman