You are flying a light aircraft at an indicated altitude of 3500 ft, based on the regional QNH of 1008 hPa, where that air is at the ISA temperature exactly. If you then fly into air which is colder than ISA, but the QNH remains the same, and you continue to fly at the same altitude, what will the aircraft's true altitude now be?
Refer to figure.
The question describes you flying at an indicated altitude of 3500ft, and the temperature is exactly ISA, meaning that the true altitude of the aircraft is exactly 3500 ft, as the altimeter is working perfectly in ISA conditions, as it is designed to do.
When flying into a colder air mass, but still at 3500 ft indicated altitude on the correct QNH of 1008 hPa, the colder air mass means that the altimeter will over-read, and actually we are flying lower than 3500 ft true altitude. This is because pressure drops off more quickly with altitude in cold air masses, and the altimeter (which is really just a barometer) doesn't know about this, as it is only calibrated for ISA temperatures.
Remember the phrase "high to low, beware below", which works for temperature and pressure changes, meaning going from high temperature to low temperature, your true altitude will decrease (same for pressure if the altimeter subscale is not appropriately changed)
Relationships
HIGHER PRESSURE; INDICATED ALTITUDE > PRESSURE ALTITUDE
LOWER PRESSURE; INDICATED ALTITUDE < PRESSURE ALTITUDE
WARMER THAN ISA; TRUE ALTITUDE > INDICATED ALTITUDE
COLDER THAN ISA; TRUE ALTITUDE < INDICATED ALTITUDE
Definitions
Pressure Altitude: The altimeter indication with standard pressure (1013.2 hPa) set.
Indicated Altitude: The altimeter indication with local QNH set.
True altitude: The actual altitude of the aircraft above mean sea level.
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