Problem 2 [20 pts). This table refers to unfair tax treatment under inflation. You may add auxiliary columns as you deem necessary (e.g. similar to homework). Consider each scenario separately. Remember that no tax must be paid on losses. (A) [2x5] Find the values in the shaded cells labeled {a} and {b}. Show your work. Scenario Purchase price Selling price of stock of stock Price level at the beginning of year Price level at the end of the year Tax Rate Real after-tax gain A $900 $990 18 17.28 {a} 50% on real gain 20% on nominal gain B $33 $33.3 174 175.74 {b} (B) [5] In scenario A, suppose your investment strategy is expected to bring you {a} every year in the future. Plot the dynamics of logarithm of your wealth. How often will the wealth be doubling? (C) [5] Give an example of a situation when an investor would want the tax to be applied to the nominal capital gains. If no such situation is possible, explain why