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Solutions
The correct answer is option 3 i.e. Both conclusions I and II follow.
The least possible diagram for the given statements is:

Conclusions:
I. All tea is wood: True (As it is given that all tea is milk and all milk is wood so, all tea is definitely wood)
II. Some milk is tea: True (As it is given that all tea is milk so, some milk is definitely tea)
Hence, the correct answer is Both conclusions I and II follow.