McDonald left Sheffield United in August to sign with Kenny Jackett's side, and after contributing to Wolves' League One title success and winning the Player of the Year award at the club, the Scot is keen to push towards a return to the Premier League.
The 25-year-old is quoted by the Express & Star as saying: "This is a chance to play at the highest level and I think that I'm at the right club to do it.
"When I signed, it was a big decision for me but I'm so glad that I made it now.
"I'm still young and have my best years ahead of me so hopefully I can perform at the same levels as I have done this season."
McDonald scored five goals in 44 appearances for Wolves last season.