Which is the answer? Why?

The last sentence says:

So when he failed, no one believed it.

That means that they thought he'd do well, but then he later failed. They didn't think he had done well. That might have been correct if the last sentence said:

When we realized he had failed, no one believed it.

That's why the answer is D.

We were so sure that Jerry would do well on the difficult job. His past experience in other work showed he was the right guy for it. So when he failed, no one believed it.