Company A is a US international company, and Company B is a Japanese local company. Company A is negotiating with Company B to sell its operation in Tokyo to Company B. The deal will be settled in Japanese yen. To avoid a loss at the time when the deal is closed due to a sudden devaluation of yen relative to dollar, Company A has decided to buy at-the-money dollar-denominated yen puts of the European type to hedge this risk.

You are given the following information:

(i) The deal will be closed 3 months from now.

(ii) The sale price of the Tokyo operation has been settled at 120 billion Japanese yen.

(iii) The continuously compounded risk-free interest rate in the United States is 3.5%.

(iv) The continuously compounded risk-free interest rate in Japan is 1.5%.

(v) The current exchange rate is 1 US dollar = 120 Japanese yen.

(vi) The daily volatility of the yen per dollar exchange rate is 0.261712%.

(vii) 1 year = 365 days; 3 months = 1/4 year.

Calculate Company A’s option cost.

(A) 7.32 million

(B) 7.42 million

(C) 7.52 million

(D) 7.62 million

(E) 7.72 million