im doing this question and the answer key is below and I am confused on some things-

1. the 50,000 in step 2, why did they choose only the 50,000 and not the 100,000? why is the 100,000 nowhere in the steps to getting the answer? is step two skipping (100,000-50,000=50,000)?
2. in step 2 why do we subtract interest earned and not add it to the net interest?
3. why in step 3 do we have to subtract 50,000 from the 500,000 if its apart of the money in the loan? why isn't the net proceeds 500,000?

A company obtained a short-term bank loan of $500,000 at an annual interest rate of eight percent. As a condition of the loan, the company is required to maintain a compensating balance of $100,000 in its checking account. The checking account earns interest at an annual rate of three percent. Ordinarily, the company maintains a balance of $50,000 in its account for transaction purposes. What is the effective interest rate of the loan? Choice "D" is correct. 8.56%. To calculate the effective annualized percentage cost of financing: Step 1: Calculate the actual finance charge: Actual interest =(P Rate Time ) $500,0008%=$40,000 Step 2: Subtract any interest earned (if any) on additional required compensating balance: Additional interest earned: $50,000.03=$1,500 Net interest cost =$40,000[ from Step 1] $1,500=$38,500 Step 3: Divide the difference (net interest) by the loan proceeds the company has use of: Loan proceeds company has use of: $500,000$50,000 (additional balance) =$450,000 $450,000$38,500=8.555%=8.56% (PeriodicRates)