US CMA Part 2 · Chapter 7 · Question 12 of 15
Pendle Logistics faces a 10% annual chance of a cyberattack causing a $1,000,000 loss. A security upgrade costing $60,000 per year would reduce the probability to 3%. What is the net annual benefit (cost) of the upgrade based on expected values?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) Net benefit of $10,000
Explanation
Expected loss without upgrade = 10% x $1,000,000 = $100,000. With upgrade = 3% x $1,000,000 = $30,000. Reduction in expected loss = $70,000. Net benefit = $70,000 - $60,000 = $10,000. Comparing the cost with the full original expected loss ($100,000) overstates the benefit because some risk remains.
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