1. You plan to purchase today 1000 shares of Snyder Chemical Works common stock at $22.50 per share. You intend to hold the stock for 5 years at which time you expect the stock's P/E to be 18.
At the time of sale you expect the EPS of the company to be $3.10.
If the company pays a dividend of $2.00 per share annually (i.e., $0.50 per quarter) and you expect to be able to reinvest the dividends at an average annual money market rate of 2%, what is your Horizon Yield (HY) for this stock position.
2.You own an apartment complex made up of 10 units each of which is rented out at a monthly rent of $1000. You purchased the facility 2 years ago for $1,000,000, and plan to hold the complex for another 8 years at which time you expect to sell the facility for $1,800,000.
Assume your costs of operation for the complex (upkeep, property taxes, employee wages, etc.) amount to $7,500 per month.
If you expect to reinvest any cash flows (net income) from the apartment complex at an annual reinvestment rate of 6.0%, what is your expected Horizon Yield for this real estate investment? (Assume a monthly reinvestment of net income payments over the year.)