Cartier Jewelers has issued bonds, common stock, and preferred stock. The YTM on the bonds is 12% and the expected annual return on the common stock is 20%. Which of the following assertions about the expected annual return on the preferred stock issued by Cartier Jewelers is most likely to be true?

1. The expected annual return on the preferred stock is 12%
2. The expected annual return on the preferred stock is 23%
3. The expected annual return on the preferred stock is 20%
4. The expected annual return on the preferred stock is 9%
5. The expected annual return on the preferred stock is 16%