Introducing one additional element due to possible misfortune to the return of each of two assets in the basic model of Samuelson (Rev.Econom.Statist.51 (1969)239)on optimum portfolio and consumption decisions,this paper resolves both the excess equity premium and the excess consumption...

This paper is based closely on the author's Y. C. Jao lecture presented to the Hong Kong Economic Association in November 1998.