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Which of the following securities is most appropriately measured for interest rate risk using modified duration?
A
A callable bond, as yield duration statistics like modified duration are not applicable due to the undefined internal rate of return. Effective duration is the suitable measure.
B
A US Treasury bond, as modified duration is suitable for non-complex bonds like Treasuries, whereas effective duration is necessary for bonds with embedded options.
C
A mortgage-backed bond, as yield duration statistics such as modified duration are irrelevant for such securities.
