Given address has no '/' notation so we follow classful addressing..Under this scheme the given address falls under class B address.So we know default mask for class B = 255.255.0.0
Now hence no of network bits = 16 = No of host bits
Now if we take 7 bits from host for subnetting purpose and we have hence 9 bits remaining for host within a subnet..
So no of subnetworks = 2no of subnet bits - 2
= 128 - 2
= 126
The reason being if all subnet bits are 0's they correspond to network id and if all 1's this corresponds to the direct broadcast address of the network..Hence both of these cases are excluded , hence we subtract 2 for getting no of subnets.
Now no of hosts = 2no of host bits - 2
= 512 - 2
= 510
The reason being the first address corresponds to subnet id and last address corresponds to direct broadcast address of subnet hence both are excluded.
Hence C) is the correct answer.