The effective duration of a bond measures its price sensitivity to changes in the benchmark yield curve. The correct calculation is:

$\text{EffDur} = \frac{(PV_+) - (PV_-)}{2 \times (\Delta \text{Curve}) \times (PV_0)}$

Where:

• $PV_0 = 95.35$ (current price)
• $PV_+ = 99.50$ (price if yield decreases by 0.5%)
• $PV_- = 92.25$ (price if yield increases by 0.5%)
• $\Delta \text{Curve} = 0.005$ (change in yield)

Substituting the values:

$\text{EffDur} = \frac{99.50 - 92.25}{2 \times 0.005 \times 95.35} = 7.60$

Why? Effective duration and convexity are the most appropriate measures for bonds with embedded options, as they account for potential changes in cash flows due to interest rate movements.