Answer 2: There may be more than one answer
Most people assume ABC refers to the sequence of the alphabet and take ABC --> ABD to mean that XYZ --> XYA, ie assuming the last letter should move one space along the alphabet.
However, it doesn't say anywhere in the question that the alphabet is cyclical. Some people move on to numbers or even keyboard symbols after they reach Z – XYZ --> XY1. But why assume the alphabet being used is the 26-letter version used in English? Why assume it's an alphabet at all? These could be mathematical symbols, chemical symbols or map co-ordinates.
The question is designed to show you there can often be multiple correct answers to a problem.