Jean Paul holds €500,000 worth of French Treasury notes. These bonds are currently being quoted at 105% of par. He is concerned that rates are headed up over the next six months and would like to do something to protect this bond portfolio. His friend, Jean-Luc, advises him to set up a hedge using T-bond futures contracts. Assume these contracts are trading at 111.06.
a. Briefly describe how Jean Paul would set the hedge. Should he go long or short? How many contracts does he need?
b. It’s now six months later, and rates have indeed gone up. Jean Paul’s bonds are now being quoted at 93.50, and the T-bond futures contracts used in the hedge are now trading for 98.00. Show what happened to the value of the bond portfolio and the profit (or loss) made on the futures hedge. 

c. Was this a successful hedge? Explain.