CAS-004 Governance, Risk, and Compliance Practice Question
An organization is using the FAIR framework to quantify risk. The analyst estimates the probable loss event frequency (LEF) as 4 per year and the probable loss magnitude (LM) as $25,000 per event. What is the annualized loss expectancy (ALE) under FAIR?
⚠ Common exam trap
Test-takers frequently confuse ALE with Loss Magnitude (LM) or inverting the formula (LM ÷ LEF); candidates must remember ALE = LEF × LM and not simply pick the per-event dollar figure.
Answer choices
Why each option matters
Answer the question above first, then reveal the full breakdown to understand why each option is right or wrong.
Correct answer & explanation
✓
$100,000
Under the FAIR (Factor Analysis of Information Risk) framework, Annualized Loss Expectancy (ALE) is calculated as Loss Event Frequency (LEF) multiplied by Loss Magnitude (LM). Here, LEF = 4 events per year and LM = $25,000 per event, so ALE = 4 × $25,000 = $100,000. This represents the expected annual financial loss from the risk scenario.
Answer analysis
Option-by-option breakdown
For each option: why learners choose it and why it is or isn't the right answer here.
- ✗
$6,250
Why it's wrong here
Dividing LM by LEF inverts the FAIR formula; ALE requires LEF × LM = $100,000. $6,250 describes loss magnitude per event spread across four events, which no FAIR metric defines. The analyst would use this arithmetic only when deriving a per-event figure from an annual total.
- ✗
$125,000
Why it's wrong here
ALE is LEF multiplied by LM, giving 4 × $25,000 = $100,000, not $125,000. The figure appears tempting because $125,000 resembles a plausible product, but it corresponds to no FAIR operation on these inputs; the correct annualised loss expectancy is $100,000.
- ✓
$100,000
Why this is correct
FAIR derives annualised loss expectancy by multiplying loss event frequency by loss magnitude, so 4 × $25,000 yields $100,000. This satisfies the stem's requirement to quantify ALE from the supplied LEF and LM values, giving the expected yearly loss the organisation faces from that risk scenario.
- ✗
$25,000
Why it's wrong here
ALE is LEF multiplied by LM, giving $100,000, not the loss magnitude alone. Stating $25,000 repeats the single-event figure, which is the input to the calculation rather than its output. Loss magnitude is used when expressing the impact of one occurrence, not annualised exposure.
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Last reviewed September 2026 · checked against the official CompTIA exam blueprint
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