Concept:
The stability and causality of a system depend upon the pole locations and ROC.
Step 1: Determine poles.
Factorizing,
\[
1-3.5z^{-1}+1.5z^{-2}
=
(1-3z^{-1})(1-0.5z^{-1}).
\]
Thus poles are
\[
z=3,
\qquad
z=\frac12.
\]
Step 2: Check stable ROC.
For stability,
ROC must include the unit circle.
Hence
\[
\frac12<|z|<3.
\]
Therefore option (A) is correct.
Step 3: Check causal ROC.
For causality,
\[
ROC: |z|>3.
\]
But this ROC does not include the unit circle.
Hence the system is unstable.
Therefore the statement
\[
\text{causal and stable}
\]
is incorrect.
\[
\boxed{\text{Option (C) is not correct}}
\]