Here fair price means on an average, you should not lose anything. So if you buy a ticket for Rs. $x$, and win Rs. 5, then you gain net Rs. $5-x$. This gain should not be negative i.e. it has to be at least 0.

You win net Rs. $5-x$ with probability $\frac{200}{10000}$, win Rs. $25-x$ with probability $\frac{20}{10000}$, win Rs. $100-x$ with probability $\frac{5}{10000}$, and win Rs. $-x$ with probability $\frac{9775}{10000}$.

Last case occurs when you don't win any ticket and lose your Rs. $x$.

Now net expected amount you win =

$0.02(5-x) + 0.002(25-x) + 0.0005(100-x) + 0.9775(-x) = 0$

Hence $x = 0.2$

So option (1) is correct.