The best version of the underlined pronoun in sentence 5 is:
C. he
The sentence refers to Billy, who is a male character, and therefore the pronoun "he" is the most appropriate choice to maintain clarity and consistency in referring to him.
So the corrected sentence would read:
"Dahl continues to build suspense with subtle clues, such as the time Billy thinks he recognizes the name of one of the former guests after reading the guestbook: 'That’s funny, he thought suddenly.'"