If Kayla's testimony is true, then the professor overreacted, enough to deserve a warning or reprimand. It should be noted, though, that by Kayla's own report, Judy never made a single racist statement or action. So when Kayla pulled the race card, she instantly became more in the wrong by a long shot.
The responses in
https://mystudentvoices.com/beware-of-wolves-in-sheeps-clothing-the-tale-of-a-progressive-professor-who-forgot-to-hide-her-7efe21b1fc5d
contained some interesting insights. I would have guessed C to be the right answer, but the historical texts indicate that D is more correct. The question is still poorly written, though.