Choosing option b "Yes" does not make peace for my vassals as well. This forces me to declare war again and lose prestige due to having signed a truce. Can anyone confirm?
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Yes, I've noticed that too. I've found that if you don't accept and then immediately sue for peace, they'll accept. It does cost you the 25 piety if they're pagan/muslim but thats better than nothing. I do hope that gets fixed in the next patch though.