Answer: Effective duration

**Explanation:** - **Option A (Modified duration):** Incorrect because modified duration is a yield duration statistic. Yield duration measures the sensitivity of a bond's price to changes in its own yield-to-maturity, not to shifts in the benchmark yield curve. - **Option B (Effective duration):** Correct because effective duration is a curve duration measure. It evaluates interest rate risk by assessing the bond's price sensitivity to a parallel shift in the benchmark yield curve, making it particularly useful for bonds with embedded options. - **Option C (Macaulay duration):** Incorrect because Macaulay duration is a weighted average of the time to receipt of the bond's promised payments, reflecting the time value of money but not directly measuring interest rate risk relative to the yield curve. For bonds with embedded options, effective duration and effective convexity are the most appropriate measures as they account for potential changes in cash flows due to interest rate movements.

Author: LeetQuiz Editorial Team