'Loudly' is an adverb, so it is a modifier of the verb in the sentence, 'read.' If you are asking the students to read the conversation in a loud manner, then loudly is correct. If you're asking them to speak it out loud rather than read silently, as in reading to a class, you would say 'read it out loud' or 'read it aloud '

read out loud, or read it aloud. Dictionary definition for out loud would be raising their voice or shouting. Dictionary definition for aloud would be to speak clearly with diction, and speak in such a way that your voice "carries" like an actor on the stage. People say out loud, all the time and it is understood that you mean aloud

Read out loud - speaks while reading. Read loud - not quiet.