Red Melon has preferred stock that pays a dividend of $9.00 per share and sells for $100 per share. It is considering issuing new shares of preferred stock. These new shares incur an underwriting (or flotation) cost of 2.70%.

How much will Red Melon pay to the underwriter on a per-share basis?

$2.30

$2.70

$87.57

$2.97

After it pays its underwriter, how much will Red Melon receive from each share of preferred stock that it issues?

$97.30

$87.57

$2.30

$2.70

$2.97

Based on this information, Red Melon's cost of preferred stock is