Let the cost of 1 litre of milk be Tk.100.
He gains 25% profit if he sells the same milk at Tk.125.
Now he has to sell 1.25 litres of milk at Tk.125 (as the price of milk should be proportional to the quantity).
To accommodate for the additional 250 ml of milk, he uses water.
So, 250 ml of water is used in 1.25 litres of the mixture.
∴ Percentage of water in mixture = (.25/1.25) × 100 = 20%
Alternative Method:
Let C.P. of 1 litre milk be Tk.1
Then, S.P. of 1 litre of mixture = Tk.1, Gain = 25%
C.P. of 1 litre mixture = Tk. (100/125×1) = 4/5
By the rule of allegation, we have:
∴ Ratio of milk to water = 4/5 : 1/5 = 4 : 1
Hence, percentage of water in the mixture = (1/5×100)% = 20%