Central Valley Transit Inc. $($CVT$)$ has just signed a contract to purchase light rail cars from a manufacturer in Germany for euro $3,000,000.$ The purchase was made in June with payment due six months later in December. Because this is a sizable contract for the firm and because the contract is in euros rather than dollars, CVT 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.

$$ The spot exchange rate is $$1\mathrm{.}250/$euro

$$ The six$-$month forward rate is $$1\mathrm{.}22/$euro

$$ CVT$\text{'}$s cost of capital is $11\%$

$$ The Euro zone $6-$month borrowing rate is $9\%($or $4\mathrm{.}5\%$ for $6$ months$)$ The Euro zone $6-$month lending rate is $7\%($or $3\mathrm{.}5\%$ for $6$ months$)$ The U$.$S$.6-$month borrowing rate is $8\%($or $4\%$ for $6$ months$)$

$$ The U$.$S$.6-$month lending rate is $6\%($or $3\%$ for $6$ months$)$

$$ December call options for euro $750,000$; strike price $$1\mathrm{.}28,$ premium price is $1\mathrm{.}5\%$ CVT$\text{'}$s forecast for $6-$month spot rates is $$1\mathrm{.}27/$euro

$$ The budget rate, or the highest acceptable purchase price for this project, is $$3,900,000$ or $$1\mathrm{.}30/$euro

$11\mathrm{.}2)$ Refer to Instruction $10\mathrm{.}1.$ If CVT chooses to hedge its transaction exposure in the forward market, it will $\_\_\_\_\_\_\_\_$ euro $3,000,000$ forward at a rate of $\_\_\_\_\_\_\_\_.$

A$)$ buy; $$1\mathrm{.}22$

B$)$ buy; $$1\mathrm{.}25$

C$)$ sell; $$1\mathrm{.}22$

D$)$ sell; $1\mathrm{.}25$

$12\mathrm{.}6)$ Refer to Instruction $10\mathrm{.}1.$ What is the cost of a call option hedge for CVT$\text{'}$s euro receivable contract? $($Note: Calculate the cost in future value dollars and assume the firm's cost of capital as the appropriate interest rate for calculating future values.$)$

A$)$ $$57,600$

B$)$ $$59,904$

C$)$ $$62,208$

D$)$ $$63,936$

$13\mathrm{.}7)$ Refer to Instruction $10\mathrm{.}1.$ The cost of a put option to CVT would be:

A$)$ $$52,500.$

B$)$ $$55,388.$

C$)$ $$58,275.$

D$)$ There is not enough information to answer this question.