If a vessel displays sidelights, a sternlight, and two all-round lights (red light over white light) in a vertical line, what type of vessel is it?

The correct answer is C. A tug boat with a tow.

A vessel displaying sidelights, a sternlight, and two all-round lights (red over white) in a vertical line indicates that it is a tugboat towing another vessel. The red over white lights signify that the tug is engaged in towing, with the red light indicating the direction of the tow. Each type of vessel has specific light configurations that indicate their activities or status, and this particular setup is characteristic of a tugboat.