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Implementing and Operating Cisco Enterprise Network Core Technologies (ENCOR) · Cisco
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Can confirm it's D. Checked properly in the ccnp and ccie encor official cert guide (page 982): Figure 18-6 The Shortest Data Path Through an Embedded Wireless Network Topology As you might have guessed, it is also possible to move the WLC even below the access layer and into an AP. Figure 18-7 illustrates the Mobility Express topology, where a fully functional Cisco AP also runs software that acts as a WLC. This can be useful in small scale environments, such as small, midsize, or multi-site branch locations, where you might not want to invest in dedicated WLCs at all. The AP that hosts the WLC forms a CAPWAP tunnel with the WLC, as do any other APs at the same location. A Mobility Express WLC can support up to 100 APs.
A does seem plausible, but requires an extra component: a dedicated WLC which would have to be at the branch office in order for the management to be local. But we're dealing with small branch offices here, so we want lower cost. With Mobility Express, the difference between CAPWAP image and ME image is whether the WLC function is included or not. For CAPWAP image, ME based WLC is not included so it can't act as a WLC. With ME image, it can act as a WLC. But in an ME environment, the APs not operating as the WLC still communicate to the designated/elected WLC by CAPWAP.
D is correct