Question

WHICH OF THE FOLLOWING REPRESENTS THE FORMATION OF A HYPOTHESIS
A deep study of history of scientific thought
B conscious observation of the world around us
C algorithm devised to study nature systematically
D factual understanding of living and nonliving things

Answer 1

C algorithm devised to study nature systematically 

This seems to be the only possible answer.

Answer 2

Conscious observation of the world around us may lead to the
formation of a hypothesis, but it doesn't always have to.

Conscious observation of the world around us often leads to the reaction
of "Gee look at that !  That's weird.  I wonder what causes that." .

At THAT point, the observer may form the further thought: "Y'know what !
I'll just bet that when [THIS] happens, [THAT] happens." .

That thought is the hypothesis.