Question

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

Answer 1

Because of the effect of the dividend in the return calculation

Step-by-step 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:

`Lori\´s Return=(22.20+1)/(21.38)-1`

`Lori\´s Return=8.51\%`

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

`Mike\´s Return=(22.20)/(21.38)-1`

`Mike\´s Return=3.83\%`