please answer q3 with explaination

The following information relates to Questions 110 Samuel \& Sons is a fixed-income specialty firm that offers advisory services to investment management companies. On 1 October 20X0, Steele Ferguson, a senior analyst at Samuel, is reviewing three fixed-rate bonds issued by a local firm, Pro Star, Inc. The three bonds, whose characteristics are given in Exhibit 1, carry the highest credit rating. EVIIRTT 1 Fived-Rare Rnnds Issued bv Pro Star. Inc. The one-year, two-year, and three-year par rates are 2.250%,2.750%, and 3.100%, respectively. Based on an estimated interest rate volatility of 10%, Ferguson constructs the binomial interest rate tree shown in Exhibit 2. On 19 October 20X0, Ferguson analyzes the convertible bond issued by Pro Star given in Exhibit 3. That day, the option-free value of Pro Star's convertible bond is $1,060 and Pro Star's stock price is $37.50. 3. A fall in interest rates would most likely result in: A. a decrease in the effective duration of Bond 3 . B. Bond 3 having more upside potential than Bond 2 . C. a change in the effective convexity of Bond 3 from positive to negative