The correct answer is 3: "The density of water is maximum at 4 degree C."

Here is why the other options are incorrect:

Option 1: "Ice is a bad conductor of heat" While this is true, it`s not the reason why the surface of the lake freezes while the bottom remains liquid. The ability of ice to conduct heat doesn`t impact how water freezes.

Option 2: "Since the surface of the lake is at the same temperature as the air, no heat is lost." This is incorrect because the surface of the lake can be colder than the air, which is how freezing occurs.

Option 3 is correct because when water cools, it becomes more dense until it hits 4 degrees C. Below this temperature, it starts to become less dense, which is why ice floats. So, the denser water at 4 degrees C sinks to the bottom, keeping the bottom of the lake liquid while the less dense water (below 4 degrees C) stays at the top and freezes.

Option 4: This is incorrect as option 3 is a correct reason.