Alex,
Your answer is clearly a logical one, but (I think) exhibits the same weakness as mine. We are both making assumtions about what the examiners have forgotten or have forgotten to tell us.
My answer assumes that they want the student to ignore Profile drag, while yours assumes that they expect the student to go for VMD or 1.32 VMD. My approach will come closer to the truth at low speeds (but will never actually be true) whereas yours will be the more accurate at high speeds(and will be true provided you pick the correct speed).
The closest thing we have to any real clue of what they might expect is the material they publish for use in the exams. In the CAP 697 (yes I know it's for flight planning), Figure 4.4 gives the fuel flow for various masses at holding speed. Making a few quick comparisons I see that they predict the % change in fuel flow to be slightly less than the % change in weight. But it is certainly closer to a 1 to 1 ratio than any square ratio. But does this mean that the PERF examiners are using the same logic???
This string continues to illustrate the truth in my earlier comment. The FTOs would all serve their students far better if we spent more time discussing the feedback we have and what it means.