Solution : Intelligent Response to an Evil Troll

What was the challenge?

The list of words given by evil troll is - 

HOE, OAR, PAD, TOE, and VAT

Remember, all travelers i.e. Al, Ben and Carl knew the correct password straightaway as soon as evil troll whispered a letter from the password to each traveler.

STEPS : 

1] The unique letters (i.e. letters appearing only once) in above list of words are D, H, P, R and V. The evil troll must have one of these letters to Al, as Al could guess the correct password straightaway. 

The word TOE doesn't have any unique letter, hence, TOE is eliminated straightaway. 

Had Evil troll whispered any letter from TOE (i.e. T, O or E), then Al wouldn't have an idea whether the correct password is TOE or VAT, HOE or TOE or OAR,  HOE or TOE.

2] Now, Ben is smart enough to know that TOE is eliminated from the race after Al's response. He has to think about only four words i.e. about HOE, OAR, PAD, VAT.

The unique letters appearing in rest of words list are D, E, H, P, R, T, and V. One of these letters must be with Al and other must be with Ben. 

But the word OAR has only one unique letter i.e. R. If OAR was the password then only 1 of 3 travelers would have guessed the password correctly while other 2 would have been confused.

Therefore, OAR can't be the password.

3] Carl too smart enough to recognize that OAR and TOE are not the correct passwords. So, he has to think of only 3 words -  HOE, PAD, VAT.

Here, unique letters from the list of words are - D, E, H, O, P, T, and V.

Every traveler must have one unique letter from the above list. In fact, the password itself must be formed by only unique letters from the above list.

Words PAD and VAT has only 2 unique letters ( P & D, V & T respectively).

So, if PAD or VAT was the correct password then the one with letter A wouldn't have been able to guess the correct password.

Hence, HOE must be the correct password. 

4] The letter H must be with Al as T, O, E can't be with him. Similarly, Ben can't have letter O, so he must had letter E and he knows TOE is not the password after hearing Al's response. And the letter O must be with Carl and he knows TOE or OAR are not the passwords.