How is Annual Loss Expectancy (ALE) calculated?

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Multiple Choice

How is Annual Loss Expectancy (ALE) calculated?

Explanation:
Annual Loss Expectancy represents the amount of money you expect to lose each year due to a specific risk. It is found by taking the loss that would occur from a single incident (Single Loss Expectancy) and multiplying it by how often such incidents are expected to happen in a year (Annualized Rate of Occurrence). The loss per incident is typically the asset value times the exposure factor (SLE = AV × EF), so the full formula is ALE = SLE × ARO. This product captures both how costly a single event could be and how often it might occur in a year. The other options don’t fit: adding SLE and ARO mixes cost with frequency, and using AV × ARO ignores the fact that a single incident may not wipe out the entire asset unless the exposure factor is 100%.

Annual Loss Expectancy represents the amount of money you expect to lose each year due to a specific risk. It is found by taking the loss that would occur from a single incident (Single Loss Expectancy) and multiplying it by how often such incidents are expected to happen in a year (Annualized Rate of Occurrence). The loss per incident is typically the asset value times the exposure factor (SLE = AV × EF), so the full formula is ALE = SLE × ARO. This product captures both how costly a single event could be and how often it might occur in a year. The other options don’t fit: adding SLE and ARO mixes cost with frequency, and using AV × ARO ignores the fact that a single incident may not wipe out the entire asset unless the exposure factor is 100%.

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