CISSP Security and Risk Management Practice Question
A security manager is calculating the annual loss expectancy (ALE) for a server valued at $50,000. The exposure factor (EF) is 40%, and the annual rate of occurrence (ARO) is 0.5. What is the ALE?
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
✓
$10,000
SLE = AV x EF = $50,000 x 0.4 = $20,000. ALE = SLE x ARO = $20,000 x 0.5 = $10,000.
Answer analysis
Option-by-option breakdown
For each option: why learners choose it and why it is or isn't the right answer here.
- ✓
$10,000
Why this is correct
This option correctly calculates the Annual 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. Subsequently, multiplying this SLE by the ARO (0.5) yields the correct ALE of $10,000, representing the expected financial loss from this specific risk over a year.
- ✗
$100,000
Why it's wrong here
This option is incorrect because it misapplies the components of the ALE calculation, leading to an exaggerated value. A result of $100,000 suggests an incorrect multiplication, possibly by an erroneous frequency or an exposure factor that is not present in standard risk assessment methodologies. It does not align with the standard formula of Asset Value multiplied by Exposure Factor and then by Annualized Rate of Occurrence.
- ✗
$25,000
Why it's wrong here
This option is incorrect because it calculates $25,000 by multiplying the Asset Value ($50,000) by the Annualized Rate of Occurrence (0.5), but it critically omits the Exposure Factor (EF). The EF is essential for determining the actual percentage of the asset's value that would be lost in a single incident, making this calculation incomplete and an inaccurate representation of the Single Loss Expectancy (SLE) before annualizing.
- ✗
$20,000
Why it's wrong here
This option represents the Single Loss Expectancy (SLE) rather than the Annual Loss Expectancy (ALE) requested by the question. The SLE is correctly calculated as the Asset Value ($50,000) multiplied by the Exposure Factor (0.4), which equals $20,000. However, to arrive at the ALE, this SLE must then be multiplied by the Annualized Rate of Occurrence (ARO), which this option fails to do.
Go deeper
Related to this question
Learn chapter
Security Governance and Principles
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.
Key term
Exposure factor
Exposure factor is the percentage of an asset's value that would be lost if a specific threat event occurs, used to calculate the single loss expectancy in risk analysis.
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JA
Written by Johnson Ajibi, MSc IT Security
Senior Network & Security Engineer · founder of Courseiva
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.