I get answer (B).

f(x^2) = f(x)f(x) = f(f(x))

Consider just the part

f(x^2) = f(f(x))

So try x^2 = f(x).

Verify that this does not contradict the other equality given.

Given the constraint on the degree we cannot choose f(x) = 0 or f(x) = 1.

It also happens that 2 is the only nonzero real number satisfying n*n = n+n. (Look at the exponent to see why I say this.)