This assertion-style question tests two ideas: how a combination reaction is defined, and whether a reaction can belong to more than one category (combination and exothermic) at the same time.

Statement I says every reaction in which two or more reactants combine to form a single product is a combination reaction, regardless of heat change. This is correct. A combination (or synthesis) reaction is classified purely by its form — several reactants uniting into one product, i.e. A + B → AB (or A + B + C → ABC). The energy behaviour is a separate, independent property: a combination reaction may be exothermic (releasing heat) or endothermic (absorbing heat), and this does not change the fact that it is a combination reaction.

Statement II concerns the slaking of lime:

CaO(s) + H₂O(l) → Ca(OH)₂(aq) + heat

This is correct on both counts. It is a combination reaction because two reactants, quicklime (CaO) and water, unite to form a single product, calcium hydroxide (slaked lime, Ca(OH)₂). It is also exothermic because the reaction liberates a large amount of heat — so much that the water can begin to boil. A reaction is exothermic whenever "heat" appears among the products, and here it does. Note that the two classifications are not mutually exclusive: heat change (exothermic/endothermic) and structural type (combination/decomposition, etc.) describe different aspects of the same reaction.

Since both statements are individually true and consistent, the correct choice is that both statements are correct. The choice claiming both are incorrect fails immediately because each statement is verifiable and accurate; the two "only one correct" choices are wrong because they reject one of two valid statements.