Final answer:
An agency cost is an internal cost arising from conflicts between principals and agents, and an example is executive stock options, which can induce potentially misaligned incentives.
Step-by-step explanation:
An agency cost refers to the internal costs incurred due to the conflicts of interest between company stakeholders, particularly between owners (principals) and decision-makers (agents). The correct answer to the question 'Which of the following is an example of an agency cost?' is a. Executive stock options. This type of compensation can lead to agency costs if executives take actions that increase short-term stock prices at the expense of long-term company value, as they are incentivized to act in their own interests, potentially at the disadvantage of shareholders.