American Rapid Rail Inc. (ARR) has just signed a contract to purchase a high-speed train from Shinkasen Inc., a manufacturer in Japan for 14.95 billion. The purchase was made in November 2021 with payment due six months later in May 2022. Because this is a sizable contract for the firm and because the contract is in Yen rather than dollars, ARR is considering several hedging alternatives to reduce the exchange rate risk arising from the sale. To help the firm make a hedging decision you have gathered the following information.

• The spot exchange rate, when the contract is signed, is 115.41/$
• The six-month forward rate is 115.39/$
• ARRs forecast for 6-month spot rates is 115.43/$
• May 2022 call options for 5,000,000; strike price 115.00/$, premium price 2.40253
• May 2022 put options for 5,000,000; strike price 115.00/$, premium price 2.26585

In order to execute an option hedge, ARR will have to

a.pay a premium of 7,157.13

b.pay a premium of 7,183.56

c.collect a premium of $7,157.13

d.pay a premium of $7,183.56