Think of it this way, you started off with x amount of apples and in 3 years you are left with about .25x, which is 25% of the apples you had 3 years ago. Once you make this approximation, you can start playing with a simple example. Say you start with 1. If you reduce this quantity by 40% you get .6. If you reduce it by 40% again, you get about .36, and if you reduce it yet again by 40% you get about .25, which is 25% of what you started with. These kinds of problems are meant to get you to approximate quantities, and even though working with large numbers is a little tough, once you realize you can work with smaller numbers, its just about playing with the problem with the given choices.
On the exam, you might have thought this through like this. suppose the quantity declines by 50% yearly(you choose 50% because it is easy to work with). then $1 \rightarrow .5 \rightarrow .25 \rightarrow .125$ so a 50% decline is too much. This eliminates choice (4).
Lets try 25%. $1 \rightarrow .75 \rightarrow$ (something greater than .5) $\rightarrow$ (something greater than .375) This tells us that 25% is too low. So the only answer must be 40%