Select the option that expresses the given sentence in reported speech.
She said, “I know where he lives.”

Correct option is B

Option (b) is the correct indirect form of the given sentence.
Direct speech- Direct speech, also known as quoted speech or direct quotation, is a way of reporting someone's exact words.
Indirect speech- Indirect speech, also known as reported speech or indirect quotation, is a way of reporting someone's words or thoughts indirectly, without using their exact words.
Rules for converting direct speech to indirect speech-
· When the reporting verb of direct speech is in past tense then all the present tenses are changed to the corresponding past tense in indirect speech.  
· Reporting verbs such as ‘said/ said to’ changes to said, told.
· Comma inverted comma will be replaced with conjunction “That”.
· The  first person in direct speech  changes as per the subject of the speech.
· The  second person of direct speech  changes as per the object of reporting speech.
· The  third person of direct speech  doesn’t change.
She said that she knew where he lived. This option correctly converts the direct speech into reported speech by changing "I know" to "she knew" and maintaining the correct tense.