BPt = b0 + b1 INFt-1 + b2 INCt +ut Regression Coefficients Estimates b0 0.002 b1 0.8 b2 1.0 Inflation in the last period, INFt-1, is 4%. The income change in current period, INCt, can be estimated from the following: Probability Possible changes In INCt 20% 1.5% 50% 2% 30% 2.2% 1. What is the expected income differential (INCt)? 2. What is the expected change in BP in period t? Annual interest rate for 5 years U.S. 10% U.K. 13% Spot rate of BP is $1.50 1. What is the forward premium (discount) if the 5-year forward rate is used as a forecast? 2. What is the expected change in BP in 5 years? 3. What is the future spot rate of BP in 5 years?