A shopkeeper marks the price of an item keeping 20% profit. If he offers a discount of 121/2\% on the marked price, his gain percent will be = ?

Answer: Option B

Let cost price of item = Rs. 100
Marked price of item = 120% of 100
$$\begin{array}{rl}& \text{ = }\frac{120}{100}\times \text{100 }\\ & \text{ = Rs}\text{. 120 }\end{array}$$
After discount, selling price = 87.5% of 120
$$\begin{array}{rl}& \frac{87.5}{100}\times \text{120 = Rs}\text{. 105}\\ & \text{Profit}\%=\frac{105-100}{100}\\ & =5\%\end{array}$$