Anju, there are a number of ways of wording any question - but it rather depends what aspect of our knowledge you were intending to test.
By including options that test for the existence of a specific row, when no mention was made of inserting anything other than the original four, it leaves you open to the thought that "Well, why offer those options at all, when a simple INSERT will do it? Perhaps there could have been other activity he hasn't told us about".
That in turn suggests a further scenario that invalidates both your options - what if a row had been inserted and then deleted, but a further row with value 1000 inserted? The row with identity value 5 does not exist, so the tests will fail and the row cannot be updated, but the value you need in the table is already there with an identity value of 6. What are your intentions then? Both the options you present will insert a row that, perhaps, you do not need.
I think, therefore, it is better to include the DML in the question and state that WYSIWYG. Then we have a known starting point. I think most people would prefer questions that challenge knowledge, logic and comprehension, but we need all the facts. If too many assumptions as required, then it all turns into what looks like a trick question, and I'm bored with those.