Becoz of highest convexity barbell portfolio should have experienced smallest decline in value as per sir’s notes why in this question its bullet portfolio which has smallest decline in value?
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Decline in price is a function of both duration and convexity. Barbell has the highest convexity undoubtedly. But the same loses on the duration front. The duration of the Bullet here is lower than the duration of the barbell. That effect outways the convexity effect. Hence, for a 50 bp upward shift in interest rate makes the Bullet fall less than barbell since barbell has a higher duration than the bullet.