hardMultiple Choice
SSCP Practice Question: A financial institution uses a quantitative risk…
A financial institution uses a quantitative risk analysis to evaluate a new online payment system. The asset value is $5 million, the exposure factor is 40%, and the annualized rate of occurrence (ARO) is 0.5. What is the annualized loss expectancy (ALE)?
⚠ Common exam trap
ISC2 often tests the distinction between SLE and ALE, trapping candidates who stop after calculating SLE ($2,000,000) and forget to multiply by the ARO (0.5).
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
✓
$1,000,000
The annualized loss expectancy (ALE) is calculated as single loss expectancy (SLE) multiplied by the annualized rate of occurrence (ARO). SLE is asset value ($5,000,000) times exposure factor (40%) = $2,000,000. Then ALE = $2,000,000 × 0.5 = $1,000,000. This quantitative risk analysis formula is standard in financial risk assessments for payment systems.
Answer analysis
Option-by-option breakdown
For each option: why learners choose it and why it is or isn't the right answer here.
- ✓
$1,000,000
Why this is correct
Multiplying the asset value of $5 million by the 40% exposure factor gives a single loss expectancy of $2 million. Multiplying that by the 0.5 annualised rate of occurrence yields an annualised loss expectancy of $1,000,000, satisfying the quantitative risk analysis constraint in the stem.
- ✗
$800,000
Why it's wrong here
$800,000 applies the 40% exposure factor to the $2,000,000 SLE a second time, double-counting it. The exposure factor belongs only in the SLE calculation ($5,000,000 × 0.40); ALE then multiplies SLE by ARO, yielding $1,000,000.
- ✗
$2,000,000
Why it's wrong here
$2,000,000 is the single loss expectancy, not the annualised figure; it omits multiplication by the 0.5 ARO. SLE is the correct output when quantifying one incident's expected loss, but ALE requires scaling that by how often the event occurs annually, giving $1,000,000.
- ✗
$2,500,000
Why it's wrong here
$2,500,000 treats the exposure factor as applied twice or misreads the asset value. ALE is single loss expectancy multiplied by annualised rate of occurrence: $5,000,000 × 0.40 = $2,000,000 SLE, then × 0.5 = $1,000,000. This figure would arise only if the exposure factor were 100% and ARO were 0.5.
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Written by Johnson Ajibi, MSc IT Security
Senior Network & Security Engineer · founder of Courseiva
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