$539 = 512 + 16 + 8 + 2 + 1 = 2^9 + 2^4 + 2^3 + 2^1 + 2^0$
$= (1000011011)_2$
Now all answers have 12 bits, so we add two 0's at beginning $= (001000011011)_2$
To convert to 2's complement invert all bits till the rightmost 1, which will be $(110111100101)_2$
$= (1101 1110 0101)_2$
$= (DE5)_{16}$
Correct Answer: $C$