A company needs to pay in six months for a total of 3 Million USD. As of today, the spot exchange rates are 1.24/1.26 CAD/USD and the sixmonth forward rates are 1.27/1.29 CAD/USD. It can buy the six-month option on USD with an exercise price of 1.27 and a premium of 0.05 CAD per USD for the call and 0.07 CAD per USD for the put. Assume that your expected future spot exchange rate is the same as the forward rate.

If the estimated distribution of the spot rate in six months is: Spot Rates

Low( 85% probability) 1.23/1.24

High 15%*probability) 1.29/1.31

calculate the PV of the payment in CAD for the option hedge.