I'd just add that you really don't need to know much about how the standard deviation will be affected when you enlarge a set. If you take the set {1, 3, 5}, and you add the number 4.5 to the set, it's mathematically quite complicated to see what effect that will have on the standard deviation, mainly because your mean changes, so *all* of the distances change. While you might need to be concerned with this kind of situation in an advanced statistics course, you'll certainly never need to worry about it on the GMAT.
The lone situation you'd want to understand is the one Karishma discusses above: if you enlarge a set by adding new elements which are exactly equal to the mean, that will bring the standard deviation closer to 0, because you are adding elements with a distance of 0 to the mean. So if you have the set {1, 3, 5}, and you add new elements to this set which are equal to 3, that will lower the standard deviation.
As for the question in the original post, the answer is E. One can take two extreme examples to see this easily. Suppose our test is graded out of 100, and that test-takers A, B and C had scores of 49, 50 and 51. Their standard deviation is then some small positive number. We could have either of the following scenarios, using both statements:
* U, V, W, X, Y and Z all received scores of 100 on the test. Their standard deviation is thus 0 when we combine their scores into one set.
* U, V and W received scores of 100 on the test, and X, Y and Z received scores of 0 on the test. Then when we combine their scores into one set, we have the set {0, 0, 0, 100, 100, 100} which has a comparatively large standard deviation, certainly much larger than that of {49,50,51}.