Answer (D) is correct . Capital adequacy is a term normally used in connection with financial institutions. A bank must be able to pay those depositors that demand their money on a given day and still be able to make new loans. Capital adequacy can be discussed in terms of solvency (the ability to pay long-term obligations as they mature), liquidity (the ability to pay for day-to-day ongoing operations), reserves (the specific amount a bank must have on hand to pay depositors), or sufficient capital.
Answer (A) is incorrect because Anytime uncertainty increases, risk increases. Thus, as the duration of a project or investment increases, so does the associated risk.
Answer (B) is incorrect because Anytime uncertainty increases, risk increases. Thus, as the volatility of a project or investment increases, so does the associated risk.
Answer (C) is incorrect because Anytime uncertainty increases, risk increases.
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