Please list all steps to solve, preferably using Excel's PV, FV, and RATE functions as needed.

Suppose the interest rate on a 1-year T-bond is 3.25% and that on a 2-year T-bond is 4.75%.Assume that the pure expectations theory is NOT valid, and the MRP is zero for a 1-year T-bond but 0.4% for a 2-year bond.What is the equilibrium market forecast for 1-year rates 1 year from now?

a.5.46%

b.6.58%

c.7.75%

d.8.42%

e.8.89%