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CRISC Practice Question: A financial institution uses a quantitative risk…

A financial institution uses a quantitative risk assessment for a core banking system. The annual loss expectancy (ALE) is calculated as $500,000 with a single loss expectancy (SLE) of $2,500,000. What is the annualized rate of occurrence (ARO)?

⚠ Common exam trap

The trap here is that candidates often mistakenly invert the formula, dividing SLE by ALE to get 5.0, or confuse ARO with a percentage, leading to 0.5, instead of correctly applying ALE = SLE × ARO to solve for ARO.

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

✓

0.2

The annualized rate of occurrence (ARO) is derived from the formula ALE = SLE × ARO. Given ALE = $500,000 and SLE = $2,500,000, solving for ARO yields $500,000 / $2,500,000 = 0.2. This means the core banking system is expected to experience a loss event once every five years on average.

Answer analysis

Option-by-option breakdown

For each option: why learners choose it and why it is or isn't the right answer here.

  • ✗

    5.0

    Why it's wrong here

    This would require ALE= $12,500,000.

  • ✗

    2.0

    Why it's wrong here

    This would require ALE= $5,000,000.

  • ✗

    0.5

    Why it's wrong here

    This would require SLE= $1,000,000.

  • ✓

    0.2

    Why this is correct

    ARO = ALE / SLE = 0.2.

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JA

Written by Johnson Ajibi, MSc IT Security

Senior Network & Security Engineer · founder of Courseiva

This CRISC 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 CRISC exam.