What is the formula for determining the price of preferred stock?

The formula for determining the price of preferred stock is based on the present value of future cash flows, specifically the dividend payments it is expected to generate. Preferred stock typically pays a fixed dividend, which can be considered a series of cash flows. The price of preferred stock can be determined by calculating the present value of these expected dividends, together with the present value of the par value that will be returned to shareholders upon liquidation or at maturity.

In this context, the formula involves taking the present value of the dividend payment, which is the cash flow from the preferred stock, and the present value of the par value, which represents the final amount received by shareholders. This reflects the concept that the value of any investment is equal to the sum of its future cash flows, discounted back to their present value.

Thus, the combination of these factors accurately represents the price of preferred stock, emphasizing not only the cash flows from dividends but also the eventual return of the par value. This comprehensive approach makes the answer the correct expression of determining the price of preferred stock.