Correct Answer: Pawan said that he was preparing hot coffee for me.

Solution : The correct choice is the first option .

In the transition to the indirect speech, we follow the steps as follows:

• The pronoun "I" is changed to "he" to reflect the shift in the point of view from Pawan to the reported speaker.
• "You" is changed to "me" to reflect the shift in the point of view from the person being addressed to the person reporting the speech.
• The verb tense "am preparing" is changed to "was preparing" to shift the verb tense back one step in time, as is often the case in reported or indirect speech.
• The reporting verb "said" is used to introduce the reported speech.
• The connector "that" is used to introduce the reported clause.

Therefore, the correct answer is: Pawan said that he was preparing hot coffee for me.