For this, D is the right method. Official study guides and most practice sets highlight separate environments as the ALM-friendly way to keep dev/test/prod apart, all with just one login needed per user. If anyone has seen otherwise in exam scenarios, let me know but I'm pretty sure that's how it goes.
I don’t think C is right. If you set up separate tenants, users would need different logins for each one, which breaks the single sign-on requirement. D (separate environments) keeps everything in the same tenant so users only need one account and still provides isolation between dev, test, and prod. Saw a similar question on a practice exam. Pretty sure it’s D, not C.