Stock Valuation Problem

McDonald's Corporation (MCD) is expected to pay a dividend of $9 per share at the end of this year, and it is expected that this dividend will grow at 2% per year for every year after that. The appropriate discount rate rE (i.e., expected return) for MCD is 8%.

Based on this information, answer Questions 10 through 12 below.

Question 10

What is the price of McDonald's stock?

a. $85.00

b. $112.50

c. $120.00

d. $150.00

Question 11

What is the expected price of McDonald's stock in one year from now, right after it pays the dividend of 9$?

a. $141.00

b. $150.00

c. $153.00

d. $162.00

Question 12

An analyst agrees that McDonald's dividend per share should be expected to be $9 at the end of this year and that the appropriate discount rate is rE---8%. However, this analyst suggests that the stock is actually worth $180. What is the dividend growth rate that this analyst perceives for McDonald's stock?

a. 3%

b. 4%

c. 5%

d. 6%