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6. Fundamental forecasting: Regression model: BPt - bo + b1 INFt 1 + b2 INCT +ut Regression coefficients Estimates bo 0.002 bi 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% a. What is the expected income differential (INC)? b. What is the expected change in BP in period t? 7. Long-term forecasting Annual interest rate for 5 years U.S. 10% U.K. 13% Spot rate of BP is $1.50 a. What is the forward premium (discount) if the 5-year forward rate is used as a forecast? b. What is the expected change in BP in 5 years? c. What is the future spot rate of BP in 5 years