To generate leads for new 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 $3,500 and the average first-year commission for each new account opened is $5,000. 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?
c. Construct a spreadsheet simulation model to analyze the profitability of Gustin’s seminars. Would you recommend that Gustin continue running the seminars?
d. How large of an audience does Gustin need before a seminar’s expected profit is greater than zero?