Why is cost of equity called cost of equity?

The cost of equity refers to the return that a company must provide to its equity investors, or shareholders, to compensate them for the risk they take by investing in the company's stock. It is termed "cost" because it represents an expense for the company, akin to paying interest on debt. This cost reflects the expected returns required by investors based on the perceived risk associated with holding the equity, including market volatility and company performance. Ultimately, it is a crucial factor in financial decision-making and capital budgeting.