D. How can a piece of wood floating on water illustrate the condition of lowest potential energy and maximum
stability?

The height of the center of the body with respect to gravity should be minimized with respect to the buoyancy center.

The following things should be considered:

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By minimizing the height of the body's center of gravity relative to its center of buoyancy

Explanation:

In hydrostatics, the equilibrium state of a floating body relates to either a maximum or minimum of the potential energy.An equilibrium is stable when the potential energy is minimum.Minimizing the height of the floating body's center of gravity relative to its center of buoyancy attains a stable equilibrium configuration.

dynamic equilibrium is the answer.