Guys , why it is not c ?
I understand that option adjusted price ( price of bond without call option ) = flat price ( price of bond with call option )+ call option value
So option adjusted price should be higher than flat price which is price of callable bond
Did you get the answer - I have the same doubt
Call options are a benefit to the issuer of the bond, not the investor. Thus to compensate the investor, they are rewarded with a higher yield in the form of a lower bond price.
Value of a callable bond = Value of an equivalent option-free bond - Value of call.
