The correct answer is C. "It places the participial phrase in the wrong place".
A participial phrase is a part of the sentence that has a participle followed by any other words that complete an action. The participle comes from a verb and can be used as an adjective or a noun.
"Materializing from the mist" is the participial phrase in the sentence. In this case, it should be placed at the end to be grammatically correct. The correct sentence should be The alarm warned the ship to steer quickly to the right of the rocks materializing from the mist".