One of the company’s assets is valued at $200,000.00. Based on historical data, the exposure factor is 25%, and the Annual Loss Expectancy (ALE) is calculated at $100,000.00. What is the Annualized Rate of Occurrence (ARO)?
Inrisk management, theAnnual Loss Expectancy (ALE)is calculated as:
ALE = Single Loss Expectancy (SLE) × Annualized Rate of Occurrence (ARO), whereSLE = Asset Value × Exposure Factor (EF).
Given:
Asset Value = $200,000
Exposure Factor (EF) = 25% = 0.25
ALE = $100,000
Calculate SLE:
SLE = Asset Value × EF = $200,000 × 0.25 = $50,000
Calculate ARO:
ALE = SLE × ARO
$100,000 = $50,000 × ARO
ARO = $100,000 ÷ $50,000 = 2
Thus, theAnnualized Rate of Occurrence (ARO)is2(C), meaning the incident is expected to occur twice per year.
0.4 (A):Incorrect; implies a lower frequency (0.4 times per year).
1 (B):Incorrect; would yield an ALE of $50,000, not $100,000.
[Reference:EPI CITM study guide, under Risk Management, likely covers quantitative risk analysis, including ALE, SLE, and ARO calculations. Check sections on risk assessment or quantitative analysis., ]
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