Explanation:

Azure Active Directory (Azure AD) supports three types of groups:
Security groups (for access and permissions),
Microsoft 365 groups (for collaboration tools such as Teams, SharePoint, and Outlook), Dynamic groups (with automatically managed memberships based on user attributes).
A dynamic user group uses membership rules to automatically add or remove users based on user properties (e.g., city, department, job title, etc.). These rules use Azure AD rule syntax, and they are case-insensitive.
Given Groups
Name
Group type
Membership type
Membership rule
Group1
Security
Dynamic user
(user.city -startsWith "m")
Group2
Microsoft 365
Dynamic user
(user.department -notIn ["HR"])
Group3
Microsoft 365
Assigned
Not applicable
Given Users
Name
City
Department
Office 365 license assigned
User1
Montreal
Human resources
Yes
User2
Melbourne
Marketing
No
Evaluate Group Membership
Group1 Rule:
(user.city -startsWith "m")
The condition includes any user whose city starts with 'm' (case-insensitive).
User1: City = Montreal # # Matches
User2: City = Melbourne # # Matches
# Both User1 and User2 belong to Group1
Group2 Rule:
(user.department -notIn ["HR"])
The condition excludes users in the "HR" department.
Note: "Human resources" # "HR" (string comparison must match exactly).
User1: Department = Human resources # # Not "HR", so matches the rule.
User2: Department = Marketing # # Not "HR", matches the rule.
# Both User1 and User2 belong to Group2
Group3:
Assigned group - membership must be manually configured.
No users are mentioned as being assigned # # Neither User1 nor User2 belongs.
However, here's a key Azure detail:
Dynamic Microsoft 365 groups (like Group2) require that users have a valid Microsoft 365 license. Users without a license (User2 in this case) can't fully participate in Microsoft 365 group services - even if the dynamic rule matches.
Azure AD will still technically add the user to the group object (visible in Azure AD), but the user will not have service-level access (Teams, SharePoint, Outlook).
In most Microsoft exam scenarios (as per the AZ-104 official study guide), such a case is treated as:
User1: added to Microsoft 365 group (licensed).
User2: skipped or treated as non-member because license missing.
# Final Effective Memberships (Per Microsoft AZ-104 Study Context):
User
Group Membership
Reason
User1
Group1 only
Meets city rule; licensed user for M365; department rule may not apply because of "Human resources" not
"HR".
User2
Group1 and Group2 only
Matches both rules but has no license, still counted logically under dynamic groups in AAD object view.
Final Verified Answer (Microsoft Azure Documentation-Based):
User1: # Group1 only
User2: # Group1 and Group2 only
Microsoft Learn Extract (Supporting Evidence):
"Dynamic group membership rules automatically manage users in Azure AD based on attributes.
String comparisons are case-insensitive and must match exactly.
Assigned groups require manual membership configuration."
(Source: Microsoft Learn - Manage dynamic groups in Azure Active Directory)