Question

Consider the following scenario: The asset value of your company's primary servers is $2 million. Tornadoes in this part of the country are not uncommon, and it is estimated that one will level the building every 60 years.

Refer to the scenario in question. Which of the following amounts is the ALE for this scenario?

A. $2 million
B. $1 million
C. $500,000
D. $33,333.33
E. $16,666.67

Answer 1

The ALE for the scenario where a tornado could potentially level a building with server assets valued at $2 million every 60 years is calculated to be $33,333.33, which is found by multiplying the asset's value by the Annual Rate of Occurrence.

Step-by-step explanation:

Based on the presented scenario, the calculation of the Annual Loss Expectancy (ALE) would be required to determine the annual risk cost to the company for the server assets due to tornadoes. ALE is typically calculated by multiplying the value of the asset by the Annual Rate of Occurrence (ARO) of the event. In this case, the asset value is given as $2 million and the tornado is estimated to level the building every 60 years, which equates to an ARO of 1/60.

To calculate the ALE, we use the formula: ALE = Asset Value × ARO. Plugging in the numbers we get ALE = $2,000,000 × (1/60). This results in an ALE of $33,333.33 per year ($2,000,000 ÷ 60). Therefore, the correct option is D. $33,333.33, representing the expected annual cost due to damage from tornadoes.