Question

To generate new leads for business, Gustin Investment Services offers free financial planning seminars at major hotels in Southwest Florida. Gustin conducts seminars for groups of 25 individuals. Each seminar costs Gustin $3500, and the average first-year commission for each new account opened is $5000. Gustin estimates that for each individual attending the seminar, there is a 0.01 probability that he/she will open a new account. a. Determine the equation for computing Gustin's profit per seminar, given values of the relevant parameters. b. What type of random variable is the number of new accounts opened

Answer 1

a. Determine the equation for computing Gustin's profit per seminar:

Profit = (Number of people attend the seminar * 50) – 3,500

b. What type of random variable is the number of new accounts opened:

It is a binomial random variable

Step-by-step explanation:

a.

We have the profit per seminar is equals to:

Profit = Total commission - Total cost of the seminar = Number of attendee * Probability one attendee will opened the account * Commission fee per one new account - 3,500 = Number of attendee * 0.01 * 5,000 - 3,500 = (Number of people attend the seminar * 50) – 3,500.

So, the right equation is : Profit = (Number of people attend the seminar * 50) – 3,500

b.

It is a binomial radom variable because: a account opened/closed is independent from another account opend/closed; one attendee has two possible outcome, either opened or closed.