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correct answer is 2. plz explain

i THINK THE PART IN WHICH YOU ARE CONFUSED IS that why Mg/Ether only attacked Br, not Cl"

Well As per ncert, it says that Stability of C-X bond is something like this C-F>C-Cl>C-Br>C-I  

So C-Br bond is less stable than C-Cl bond. Therefore Br acts as good leaving group and therefore on treating with Mg it converts to Cl-R-MgBr (GRIGNARD REAGENT). And you knw Treating Grig. Reagent with HCHO will give us Alcohol. And here we get CH2OH in place of MgBr. 

I think you are satisfied