US CMA Part 2 · Chapter 7 · Question 7 of 15
Ormsby Chemicals estimates a 4% annual probability of an environmental spill that would cost $2,500,000. What is the expected annual loss from this risk?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: D) $100,000
Explanation
Expected loss = probability x impact = 4% x $2,500,000 = $100,000. Comparing this figure with the annual cost of a risk response (for example an insurance premium) helps decide whether the response is cost-effective.
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