The question clearly states that we are considering Ethernet LAN (IEEE 802.3)
Ethernet LAN follows CSMA CD (Collision Detection)
Hence, Transmission time >= 2 * Propagation Time
As Transmission time = Length of frame / Bandwidth = 10^3/(500 * 10^6)
And, Propagation time = Distance / Speed = d (say)/ 20 * 10^4
So, substituting these values in the above formula we get d <= 2 Km.
Hence, max value of d is 2 Km