- 1). Understand the equation of risk exposure. The equation associated with calculating risk exposure is: Risk Exposure = Probability of Risk x Total Loss of Risk
- 2). Plug in the variables or givens for the risk exposure. To properly calculate the equation, you must know the total loss that might occur, as well as the probability of it occurring. For example, an investor is trying to close escrow on a commercial property worth $500,000 and he has a $50,000 down payment in place. Also, he is only 20 percent sure that he will secure financing.
The equation would read: Risk Exposure = 20 percent x $50,000 - 3). Perform the calculation. In the example, 20 percent would be changed to decimal form to read: .20 x $50,000 = $10,000
The risk exposure for the investment is $10,000 because in 80 percent of the cases the money is not at risk.
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