Assume that the following regression model was applied to historical quarterly data:

e_t = a₀ + a₁INT_t + a₂INF_t1 + _t

where e_t = percentage change in the exchange rate of the Japanese yen in period t

INT_t = average real interest rate differential (U.S. interest rate minus Japanese interest rate) over period t

INF_t1 = inflation differential (U.S. inflation rate minus Japanese inflation rate) in the previous period

a₀, a₁, a₂ = regression coefficients

_t = error term

Assume that the regression coefficients were estimated as follows:

a₀ = 0.0

a₁ = 0.9

a₂ = 0.8

Also assume that the inflation differential in the most recent period was 3 percent. The real interest rate differential in the upcoming period is forecasted as follows:

Interest Rate

Differential Probability

0% 30%

1 60

2 10

If Stillwater, Inc., uses this information to forecast the Japanese yens exchange rate, what will be the probability distribution of the yens percentage change over the upcoming period?