²Expenditure shocks (such as for medical needs, or to repair a broken automobile) are usually treated in a manner similar to labor income shocks. See Merton (1969) and Samuelson (1969) for a solution to the problem of a consumer whose only risk is rate-of-return risk on a financial asset; the combined case (both financial and nonfinancial risk) is solved below, and much more closely resembles the case with only nonfinancial risk than it does the case with only financial risk.