Explanation: In a grid-bias modulated stage, the modulating audio frequency (AF) signal is used to vary the DC bias voltage applied to the control grid. During the positive peaks of the AF modulating signal, this effective grid bias becomes less negative (or more positive). If the combined RF and AF voltages on the grid cause it to go positive with respect to the cathode, grid current will flow. This directly answers part A: Grid current *may* exist during the positive portions of the AF cycle. When grid current flows, it introduces a non-linear load on the preceding driver stage and changes the input impedance of the modulated amplifier. This non-linear loading can significantly distort the modulating waveform, which in turn causes distortion in the amplitude-modulated RF output envelope. This confirms part B: Grid current *may* cause distortion. Therefore, both statements A and B are correct, making C the accurate answer.