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Mike’s Hardware and Lori’s Hardware both have the same beginning of the year share price of $21.38. During the year, Lori’s Hardware paid annual dividends of $1.00, while Mike’s Hardware paid none. The share price for both companies at year end was $22.20. Why will Lori’s Hardware’s return for the year be higher than Mike’s Hardware’s return

Respuesta :

estebancgo

Answer:

Because of the effect of the dividend in the return calculation

Explanation:

let´s assume that dividend for Lori´s had been paid at the end of the year, so when a dividend is involved the calculation changes as follows:

[tex]Lori\´s Return=\frac{22.20+1}{21.38}-1[/tex]

[tex]Lori\´s Return=8.51\%[/tex]

so by the other hand Mike´s return will be naturally less:

[tex]Mike\´s Return=\frac{22.20}{21.38}-1[/tex]

[tex]Mike\´s Return=3.83\%[/tex]

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