In exam style question 1 on page 25 , I had a doubt in parts (III) and (iv) . I solved it in a different way, without making use of size(u). (Attached image) I didn't understand how and why to use size (u) for finding out MGF. Also, I want to know whether my method is correct or not for this question. Thanks!
You have used a binomial to model the amount of a claim - so you can only have 0 or 1. Whereas the actual claim is random and takes average value of \(\mu\).
