Maximum Drawdown

This problem tests your understanding of maximum drawdown, a common risk measure used to describe how far a portfolio can fall from a prior peak before recovering. In investment banking interviews, this matters because interviewers want to see whether you can interpret portfolio risk beyond simple returns and explain how historical losses are measured, compared, and communicated to investors.

The key reasoning is to understand what drawdown captures, how it differs from volatility, and why the time period used to measure it affects the interpretation. Candidates should also know how interviewers use this topic to probe familiarity with hedge fund performance metrics, the limits of historical data, and the idea that past downside experience does not guarantee future protection.