Correct Answer - Option 2 : dressed up, so she
The correct answer is 'dressed up, so she'.
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'dressed up, she assumed' should be there in place of 'dressed up, so she assumed'.
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'Since' denotes the reason so it is not followed by 'so'.
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Example:
- Since she is a liar, so I do not trust her. (wrong)
- Since she is a liar, I do not trust her. (right)
The correct sentence is: 'Since they were all dressed up, she assumed they were going to church together.'