The correct answer is red marrow.

Hematopoiesis is the formation of blood cells, which is a function of red marrow. Red marrow forms red blood cells, white blood cells and blood platelets. The process beings with a stem cell that proliferates (reproduces rapidly), differentiates (becomes a specialized cell) and replicates (duplicates).

The other choices are all parts of bones, but have different functions/characteristics besides hematopoiesis. While red marrow contains the red and white blood cells and blood platelets, yellow marrow consists of mostly fat cells. Compact bones are hard and contain closely packed osteons that form a solid mass. The periosteum is the connective tissue covering the surface of a bone. Spongy bones are less dense than compact bone and are lighter than compact bones. It contains plates (trabeculae) of bone and cavities that contain the red marrow.