How does one calculate true altitude?
This can be calculated by knowing a few formulas, or temperature relationships related to altitude. Note that all these calculations are an estimate based on standard ISA temperature and altitude relationships. See this page for other examples of this type of question.

Note the following from the question:


FL170 represents a pressure altitude of 17,000 ft
We know that the OAT is -10°C
Indicated altitude is 17,500 ft


Now, to solve for true altitude, we need to know a few additional items. We need to know that:


ISA at the surface is 15°C  
Standard lapse rate is -2°C per thousand feet
To find true altitude, the difference from indicated altitude is 4 ft per 1°C deviation from ISA for every 1,000 ft


Knowing all this, we can calculate the following:


ISA at 17,000 ft (see 4 and 5 above)
Deviation from ISA (see 2 and 7 above)
True altitude (see 6 and 8 above)




This all might sound complicated, so lets run through an example problem. Let's assume a flight at FL190, with an OAT of -15°C, on a standard pressure day.

Since ISA at the surface is 15°C, using the standard lapse rate of -2°C per thousand feet, we know that ISA at 19,000 ft will be -23°C.

Given an ISA of -23°C, we see that our OAT of -15°C shows a difference of +8°C above ISA. Follow that step carefully, because the signs can be confusing.

Given that the temperature is ISA+8°C, and knowing 6 above, we can calculate our true altitude relative to pressure altitude:

$A_T$ is our estimated true altitude, in feet
$\Delta_{ISA}$ is the difference above ISA, in °C
$A_I$ is our indicated altitude, in feet
$A_{Ik}$ is our indicated altitude, in thousands of feet

$A_T=(4 \times A_{Ik}  \times \Delta_{ISA}) + A_I$
$A_T=(4 \times 19  \times 8) + 19000$
$A_T=608 + 19000$
$A_T=19608$

In some cases, a question might ask for true altitude based on a pressure altitude, instead of an indicated altitude. In such cases, substitute pressure altitude for indicated altitude in the above formula. Remember, this is all an exercise in estimation which is helpful in reinforcing the relationships between temperature, pressure, and altitude.