Suppose the interest rate on a 1-year T-bond is 5.80% and that on a 2-year T-bond is 6.80%. Assume that the pure expectations theory is NOT valid, and the MRP is zero for a 1-year T-bond but .40% for a 2-year bond. What is the yield on a 1-year T-bond expected to be one year from now? Do not round your intermediate calculations. Round your final answer to 2 decimal places.

a) 7%

b) 6.38%

c) 6.57%

d) 7.81%

e) 6.10%

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