In my opinion, your understanding is correct and the answer should be A: Yes.
After installing CLI in Win 10 computer, it is possible to login to azure subscription and create VM by running CLI code.
Sometimes the answers are not correct on such practice test site and don't trust on those answers.
See the similar question and discussion here - https://www.examtopics.com/discussions/microsoft/view/44038-exam-az-900-topic-1-question-77-discussion/
Please don't forget to Accept Answer and Up-vote if the response helped -- Vaibhav