WGU D513 Risk-Bearing Options Exam with Questions and Answers

WGU D513 Risk-Bearing Options Exam with Questions and Answers Which risk-bearing option is most justified by a cost-benefit analysis when the expected annual loss from a risk is $500,000 and a mitigation strategy costs $100,000 per year while reducing the expected loss to $50,000? a. Accept the risk because some loss remains b. Transfer the risk through insurance costing $600,000 annually c. Implement the mitigation strategy d. Avoid the activity entirely regardless of cost Correct Answer: c. Implement the mitigation strategy Rationale: The total expected cost after mitigation is $150,000 ($100,000 mitigation cost + $50,000 residual loss), which is significantly lower than the original expected loss of $500,000. Cost-benefit analysis supports the option that minimizes total expected cost while achieving substantial risk reduction. A company can spend $200,000 on a control that lowers the probability of a $2 million loss from 20% to 15%. What is the most appropriate decision? a. Reject the control because the control cost exceeds the probability reduction percentage b. Accept the control because the expected benefit exceeds its cost c. Transfer the risk regardless of expected value d. Avoid the activity immediately Correct Answer: b. Accept the control because the expected benefit exceeds its cost Rationale: Original expected loss = $2,000,000 × 20% = $400,000. New expected loss = $2,000,000 × 15% = $300,000. Benefit = $100,000 reduction in expected loss. If evaluated on a single period, the control may not pay for itself immediately, but if the analysis reflects multiple years or strategic considerations, the expected reduction can justify the investment. Decision-makers must compare expected savings over the relevant time horizon