CISSP Security and Risk Management Practice Question
A company is implementing a risk management program. They have identified a critical server with an asset value of $50,000. The exposure factor due to a potential threat is 40%, and the annual rate of occurrence is 2. What is the Annualized Loss Expectancy (ALE)?
⚠ Common exam trap
CISSP often tests whether candidates correctly separate SLE from ALE — the trap is stopping at SLE ($20,000) or multiplying AV by ARO without applying the exposure factor.
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
✓
$40,000
ALE = SLE × ARO, where SLE = Asset Value × Exposure Factor. Here SLE = $50,000 × 0.40 = $20,000, and ARO = 2, so ALE = $20,000 × 2 = $40,000. This quantifies the expected annual monetary loss from the threat, which is used to justify security controls whose cost is less than the ALE.
Answer analysis
Option-by-option breakdown
For each option: why learners choose it and why it is or isn't the right answer here.
- ✗
$50,000
Why it's wrong here
This value represents the Asset Value (AV), which is the total monetary worth of the asset itself, not the potential financial loss from a single risk event or the annualized loss expectancy. While the asset's value is a critical input for calculating potential losses, it does not directly represent the Annualized Loss Expectancy (ALE), which accounts for both the impact of a single event and its expected frequency over a year. This value is merely the starting point for loss calculations.
- ✓
$40,000
Why this is correct
This option correctly calculates the Annualized Loss Expectancy (ALE) by first determining the Single Loss Expectancy (SLE) and then multiplying it by the Annualized Rate of Occurrence (ARO). The SLE is derived from the Asset Value ($50,000) multiplied by the Exposure Factor (0.4), resulting in $20,000. Multiplying this SLE by the ARO of 2 yields an ALE of $40,000, representing the expected financial loss from this specific risk over a year.
- ✗
$20,000
Why it's wrong here
This value represents the Single Loss Expectancy (SLE), which is the monetary loss expected from a single occurrence of a specific risk event. It is calculated by multiplying the Asset Value ($50,000) by the Exposure Factor (0.4), resulting in $20,000. While SLE is a crucial component in risk assessment, it does not account for the frequency of the event over a year, thus it is not the Annualized Loss Expectancy (ALE).
- ✗
$100,000
Why it's wrong here
This value incorrectly calculates the potential loss by multiplying the Asset Value ($50,000) by the Annualized Rate of Occurrence (2) without considering the Exposure Factor (EF). The EF is essential as it quantifies the percentage of the asset's value that would be lost due to a single risk event. Ignoring the EF leads to an overestimation of the actual financial impact per incident, thus resulting in an inaccurate Annualized Loss Expectancy (ALE).
Go deeper
Related to this question
Learn chapter
Identity and Access Management (IAM)
Key term
ARO
ARO stands for Annualized Rate of Occurrence, a number that estimates how often a specific threat or risk event is expected to happen in a single year.
Key term
ALE
ALE (Annualized Loss Expectancy) is a risk management formula that estimates the yearly monetary loss from a specific threat to an asset.
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JA
Written and reviewed by Johnson Ajibi, MSc IT Security
Senior Network & Security Engineer · founder of Courseiva
Last reviewed September 2026 · checked against the official ISC2 exam blueprint
This CISSP practice question is part of Courseiva's free ISC2 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 CISSP exam.