Quick Answer
The answer is $1,000,000. This is correct because the annualized loss expectancy (ALE) is derived by first calculating the single loss expectancy (SLE), which is the asset value of $5,000,000 multiplied by the exposure factor of 40%, yielding $2,000,000. You then multiply that SLE by the annualized rate of occurrence (ARO) of 0.5, giving an ALE of $1,000,000. On the Systems Security Certified Practitioner SSCP exam, this quantitative risk analysis calculation tests your ability to apply the standard risk formula in a financial context, often with a trap where candidates forget to convert the exposure factor from a percentage to a decimal or mistakenly multiply ARO by asset value directly. A common memory tip is to remember the acronym SLE x ARO = ALE, and that SLE itself is always Asset Value times Exposure Factor.
This SSCP practice question tests your understanding of risk identification, monitoring and analysis. Read the scenario carefully and evaluate each option against the stated constraints before committing to an answer. 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.
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)?
$1,000,000
Correct calculation: SLE = $5M × 0.4 = $2M; ALE = $2M × 0.5 = $1M.
$800,000
Why wrong: This might result from miscalculating SLE as AV × ARO.
$2,000,000
Why wrong: This is the SLE, not the ALE.
$2,500,000
Why wrong: This might be AV × ARO.
Answer choices
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.
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.
$1,000,000
Why this is correct
Correct calculation: SLE = $5M × 0.4 = $2M; ALE = $2M × 0.5 = $1M.
Related concept
Read the scenario before looking for a memorised answer.
$800,000
Why it's wrong here
This might result from miscalculating SLE as AV × ARO.
$2,000,000
Why it's wrong here
This is the SLE, not the ALE.
$2,500,000
Why it's wrong here
This might be AV × ARO.
Common exam traps
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).
Detailed technical explanation
In quantitative risk analysis, the exposure factor (EF) represents the percentage of asset value lost per incident, while ARO is the expected frequency per year. For a payment system, the SLE ($2M) might reflect a 40% data breach impact, and the ALE ($1M) helps prioritize mitigation investments. Real-world scenarios often adjust ARO based on historical threat data or vulnerability scans, and the formula assumes independent, identically distributed incidents.
Key takeaway
Answer the scenario, not the keyword: identify the specific constraint before choosing the most familiar-sounding option.
Real-world example
A security analyst at a medium-sized enterprise encounters this scenario during an investigation or architecture review. The correct answer reflects best practice for the specific threat or control described. Answer the scenario, not the keyword: identify the specific constraint before choosing the most familiar-sounding option. Security exam questions test whether you can match controls to threats in context — not just recall definitions.
What to study next
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FAQ
Risk Identification, Monitoring and Analysis — This question tests Risk Identification, Monitoring and Analysis — Read the scenario before looking for a memorised answer..
The correct answer is: $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.
Identify which exam domain this question belongs to, review the core concept, then practise similar questions from the same domain.
Read the scenario before looking for a memorised answer.
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Last reviewed: Jun 30, 2026
This SSCP 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 SSCP exam.
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