Step 1: Find the rate of the faulty watch.
Gains \(5\) s in \(3\) min \(=180\) s \(\Rightarrow\) in real \(36\) s, watch shows \(37\) s.
Thus \(\dfrac{\text{watch time}}{\text{real time}}=\dfrac{37}{36}\).
Step 2: Convert indicated time gap to real time.
From \(7{:}00\) a.m. to \(4{:}15\) p.m. (watch) \(=9\) h \(15\) min \(=555\) min \(=33{,}300\) s.
Real elapsed \(=33{,}300\times \dfrac{36}{37}=32{,}400\) s \(=540\) min \(=9\) h.
Step 3: Add to the start time.
\(7{:}00\) a.m. + \(9\) h \(= \boxed{4{:}00\ \text{p.m.}}\).