The Following Regression Model Was Estimated to Forecast the Percentage $\begin{array}{cc}\text { Probability } & \text { Possible Outcom } \\20 \% & -3 \% \\80 \% & -4 \%\end{array}$

Multiple Choice

The following regression model was estimated to forecast the percentage change in the Australian Dollar (AUD) :
AUD_t = a₀ + a₁INTt + a₂INFt _-1 + m_t,
Where AUD is the quarterly change in the Australian Dollar, INT is the real interest rate differential in period t between the U.S. and Australia, and INF is the inflation rate differential between the U.S. and Australia in the previous period. Regression results indicate coefficients of a₀ = .001; a₁ = -.8; and a₂ = .5. Assume that INFt _-1 = 4%. However, the interest rate differential is not known at the beginning of period t and must be estimated. You have developed the following probability distribution:
$\begin{array}{cc}\text { Probability } & \text { Possible Outcom } \\20 \% & -3 \% \\80 \% & -4 \%\end{array}$
There is a 20% probability that the Australian dollar will change by ____, and an 80% probability it will change by ____.

A) 4.5%; 6.1%;
B) 6.1%; 4.5%
C) 4.5%; 5.3%
D) None of the above