What does the actual price of a preferred stock usually approximate?

The actual price of a preferred stock typically approximates its par value because preferred stocks are often issued at a set par value, which is the amount that investors will receive upon liquidation of the company, and which serves as the basis for calculating dividends. Preferred stockholders generally receive fixed dividends based on this par value, which creates a stable expectation of returns.

Market participants often view preferred shares with dividends tied to par value as less volatile than common stock, leading their prices to hover around par value unless there are significant changes in interest rates, company credit risk, or overall market conditions. Consequently, while market value can fluctuate based on supply and demand, preferred stocks are structured to be valued closely to their par value under normal circumstances, reinforcing the relevance of the par value in investment decisions regarding preferred shares.