Answer: internal rate of return.

### Explanation **Option A (Incorrect):** Bonds with embedded options do have well-defined effective convexity. For callable bonds, this convexity is often negative (referred to as "concavity"), while putable bonds exhibit positive convexity. However, this does not address the issue of a well-defined internal rate of return. **Option B (Correct):** A callable bond does not have a well-defined internal rate of return (yield-to-maturity). As a result, traditional yield duration measures like modified and Macaulay durations are not applicable. Effective duration is the appropriate metric for assessing interest rate risk in such bonds. **Option C (Incorrect):** While effective duration is indeed a curve duration statistic, measuring sensitivity to parallel shifts in the benchmark yield curve, this does not imply that the bond's internal rate of return is well-defined. The question specifically focuses on the lack of a well-defined internal rate of return, making Option B the correct choice. **Conclusion:** Effective duration and effective convexity are the most appropriate measures for assessing interest rate risk in bonds with embedded options, as they account for the unique features of these securities.

Author: LeetQuiz Editorial Team