Correct option: B. 4 : 00 PM
Explanation:
The watch gains 5 seconds in 3 minutes, which is 100 seconds in 1 hour (3600 seconds), or 1 minute in 36 minutes. From 7 AM to 4:15 PM on the same day, the clock has passed 9 hours and 15 min, i.e., 555 min (37 x 15 min). The actual time that has passed must be 37 x 15 = 540 min. Thus, the correct time should be 4:00 PM.