Choice "D" is correct. Fraud on the surety by the principal debtor is not a defense unless the creditor knew of the fraud.
Choice "c" is incorrect. An uncompensated surety can be bound as long as the surety's promise is made before consideration passed between the principal debtor and the creditor. Here, State renewed the loan in exchange for obtaining the surety. Thus, there is sufficient consideration to bind Royal.
Choice "b" is incorrect. Discharge in bankruptcy of the principal debtor does not discharge the surety.
Choice "a" is incorrect. Nothing in the facts makes the arrangement here void at the inception.