CISM Information Security Risk Management Practice Question
An organization's risk management policy requires a quantitative risk assessment for all new projects. The project team estimates that a data breach could occur once every 5 years with an average loss of $2 million. What is the annualized loss expectancy (ALE)?
⚠ Common exam trap
Many exam-takers confuse the recurrence interval (every 5 years) with the ARO, mistakenly multiplying the loss by 5 instead of dividing, leading to the inflated $10,000,000 option.
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
✓
$400,000
The annualized loss expectancy (ALE) is calculated by multiplying the single loss expectancy (SLE) by the annualized rate of occurrence (ARO). Here, the ARO is 1/5 = 0.2 (one event every five years), and the SLE is $2,000,000. Thus, ALE = 0.2 × $2,000,000 = $400,000.
Answer analysis
Option-by-option breakdown
For each option: why learners choose it and why it is or isn't the right answer here.
- ✓
$400,000
Why this is correct
ALE = $2,000,000 * 0.2 = $400,000.
- ✗
$10,000,000
Why it's wrong here
This is SLE * 5, incorrect formula.
- ✗
$500,000
Why it's wrong here
This would be if ARO = 0.25, but correct ARO is 0.2.
- ✗
$2,000,000
Why it's wrong here
That is the SLE, not annualized.
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JA
Written by Johnson Ajibi, MSc IT Security
Senior Network & Security Engineer · founder of Courseiva
This CISM practice question is part of Courseiva's free ISACA certification practice question bank. Courseiva provides original exam-style practice questions with explanations, topic-based practice, mock exams, readiness tracking, and study analytics to help learners prepare for the CISM exam.