Suppose now that the call prices at t = 1 and t = 2 are 101 and 100, respectively. The price of the callable bond would be _____________.

a. Higher because lower call prices mean that, if the bond is called, the investor would receive lower cash flows.

b. Higher because lower call prices mean that the bond is more likely to be called.

c. Lower because lower call prices mean that, if the bond is called, the investor would receive lower cash flows.

d. Lower because lower call prices mean that the bond is less likely to be called.