You want to estimate the cost of a firm's hybrid security. The security was issued three years

ago at $50/security. The price is currently $54/security. It pays a semiannual dividend of

$2.50/security. The company has the one-time option to pay a super dividend of $55/security in 5

years, which would cause the securities to expire (essentially, a buyback option). Your research

indicates that the company will exercise this option with a probability of 20%. What is the annualized

cost of this firm's hybrid security capital?