McDonalds Corporation announced an increase of their quarterly dividend from $0.55 to $0.61 per share in September 2010. This continued a long string of dividend increases. McDonalds was one of a few companies that had managed to increase its annual dividend at a double-digit clip for many years, including through the financial crisis and recession from 2007-2009.. Suppose you want to use the dividend growth model to value McDonalds stock. You believe that dividends will grow at 7 % per year indefinitely, and you think the markets required return on this stock is 11 %. Lets simplify by assuming that McDonalds pays dividends annually and that the next annual dividend is expected to be $2.44 per share. The dividend will arrive in exactly one year. What would you pay for McDonalds stock right now? Suppose you buy the stock today, hold it just long enough to receive the next dividend, and then sell it. What rate of return will you earn on that investment?

A. Value of stock today

B. If you buy stock today at the above price and next year you receive a $2.44 div then you sell the stock. At what price will the stock sell one year from now? The next dividend will be 7% higher than the last one:

Which of the following is the right answer

$63; $65.00

$60; $64.75

$62.50; $70.00

$61; $65.25