Option 1: Fat dispersed in milk - This option suggests that butter is made up of fat particles dispersed in milk. However, this is incorrect as butter is not made by dispersing fat in milk.

Option 2: Water dispersed in fat - This is the correct answer. Butter is made by churning cream, which separates the fat (butterfat) from the liquid (buttermilk). The process of churning causes the fat globules to join together, trapping some water molecules in between.

Option 3: Water dispersed in oil - This option is incorrect because butter is not made using oil. It is made using cream which contains milk fat.

Option 4: Fat dispersed in water - This option is incorrect because butter is not made by dispersing fat in water. The process of churning cream separates the fat from the liquid, resulting in butter.