"To configure scoped policies that assign additional labels to group members, you can use any type of group in Microsoft Entra ID that has an email address that contains a verified domain for the user's tenant. A group that has an email address is often referred to as a mail-enabled group."
https://learn.microsoft.com/en-us/azure/information-protection/prepare#azure-information-protection-requirements-for-group-accounts
https://learn.microsoft.com/en-us/microsoft-365/compliance/sensitivity-labels?view=o365-worldwide
Unlike retention labels, which are published to locations such as all Exchange mailboxes, sensitivity labels are published to users or groups. Apps that support sensitivity labels can then display them to those users and groups as applied labels, or as labels that they can apply.
When you configure a label policy, you can:
Choose which users and groups see the labels. Labels can be published to any specific user or email-enabled security group, distribution group, or Microsoft 365 group (which can have dynamic membership) in Azure AD.
A is correct.
According to the Microsoft documentation, "You can also use sensitivity labels to protect content in the following containers: Microsoft Teams sites, Microsoft 365 groups (formerly Office 365 groups), and SharePoint sites."
https://learn.microsoft.com/en-us/microsoft-365/compliance/sensitivity-labels-teams-groups-sites?view=o365-worldwide
Yep, according to the documentation, you can apply it to M365 group
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