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 ARO for this scenario?

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

Answer 1

To calculate the Annual Rate of Occurrence (ARO) for the company's primary servers potentially being damaged by a tornado, divide the asset value, $2 million, by the event's cycle, 60 years, which gives an ARO of $33,333.33. (option D)

Step-by-step explanation:

The scenario you described involves calculating the Annual Rate of Occurrence (ARO) for a potential tornado damaging your company's primary servers. The ARO is essentially the expected frequency of a particular event occurring within a given year. To calculate the ARO, you would take the total cost of the event and divide it by the number of years in the event's cycle, which in this case is the frequency at which the building is expected to be leveled by a tornado.

So, the formula for ARO in this scenario would be $2 million divided by 60 years. Doing the math will give you the ARO: $33,333.33. This is the annualized cost you would expect from tornado damage to the servers.