Southwest Airlines hedged the cost of jet fuel by purchasing the options that allowed the airline to purchase fuel at a fixed price for 6 years. The market price for fuel was $0.507 per gallon higher than the option price in the year 1, $0.651 per gallon higher in year 2, with the price increasing by the $0.144 per gallon each year until year 6.
1. Calculate what was the present worth of SWA's savings per gallon if the interest rate was 10.8% per year?
2. Determine the equivalent annual worth of the savings?