Quick Answer
The answer is $400,000. This is correct because the annualized loss expectancy (ALE) is calculated by multiplying the single loss expectancy (SLE) of $2 million by the annualized rate of occurrence (ARO), which is 0.2—derived from the estimated frequency of once every five years (1/5). On the Certified Information Security Manager CISM exam, this quantitative risk assessment calculation tests your ability to convert a periodic threat event into an annualized figure, a core concept in risk management and analysis. A common trap is forgetting to convert the frequency into a decimal (0.2) or mistakenly using the raw number 5 in the formula. To remember the formula, think of the acronym ALE = SLE × ARO, and recall that “ARO” always represents the number of times per year, so a “once every five years” event must be expressed as 0.2.
This CISM practice question tests your understanding of information security risk management. Match the stated requirement to the specific cloud service, access model, or configuration option — many options are valid in isolation but not for this scenario. After answering, compare your reasoning against the explanation and wrong-answer breakdown below. Once you have made your selection, read the full explanation to reinforce the concept and understand why each distractor is designed to mislead on exam day.
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)?
$400,000
ALE = $2,000,000 * 0.2 = $400,000.
$10,000,000
Why wrong: This is SLE * 5, incorrect formula.
$500,000
Why wrong: This would be if ARO = 0.25, but correct ARO is 0.2.
$2,000,000
Why wrong: That is the SLE, not annualized.
Answer choices
Answer the question above first, then reveal the full breakdown to understand why each option is right or wrong.
Correct answer & explanation
$400,000
Option A is correct: ALE = SLE x ARO, where SLE = $2M and ARO = 0.2, so ALE = $400,000. Option B is wrong because it uses frequency 1/5 but misapplies. Option C and D are incorrect calculations.
Key principle: Answer the scenario, not the keyword: identify the specific constraint before choosing the most familiar-sounding option.
Answer analysis
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.
Related concept
Read the scenario before looking for a memorised answer.
$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.
Common exam traps
Many certification questions include familiar terms but test a specific constraint. Read the exact wording before choosing an answer that is generally true but wrong for this case.
Detailed technical explanation
This question should be treated as a scenario, not a definition check. Identify the problem, the constraint and the best action. Then compare each option against those facts.
Key takeaway
Answer the scenario, not the keyword: identify the specific constraint before choosing the most familiar-sounding option.
Real-world example
A practitioner preparing for the CISM exam encounters this exact type of scenario on the job. The correct answer here is not the most general option — it is the best answer for the specific constraint described. Answer the scenario, not the keyword: identify the specific constraint before choosing the most familiar-sounding option. Real exam questions reward reading the full scenario before eliminating options, because the constraint defines which answer fits.
What to study next
Identify which CISM exam domain this question belongs to, then review the specific concept being tested. Practise related questions in that domain and focus on understanding why each wrong answer is tempting — not just why the correct answer is right.
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FAQ
Information Security Risk Management — This question tests Information Security Risk Management — Read the scenario before looking for a memorised answer..
The correct answer is: $400,000 — Option A is correct: ALE = SLE x ARO, where SLE = $2M and ARO = 0.2, so ALE = $400,000. Option B is wrong because it uses frequency 1/5 but misapplies. Option C and D are incorrect calculations.
Identify which CISM exam domain this question belongs to, then review the specific concept being tested. Practise related questions in that domain and focus on understanding why each wrong answer is tempting — not just why the correct answer is right.
Read the scenario before looking for a memorised answer.
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Last reviewed: Jun 24, 2026
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.
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