The current stock price of Hale Umbrellas is $20. The volatility of the stock return on this consumer products company moves inversely with the stock price:

/ month=2/s

For example, the current standard deviation is 10% (2/20) per month. The interest rate (simple) is 1% per month. If Hale will not pay dividends this year, estimate the value of an American call option with a strike price of $20 and a time to expiration of two months. Use the binomial approach with two periods. (When you use the formula in Lecture Note 8, please use month as you time unit, instead of years). Would the value of the call be higher or lower if the volatility were always 10% per month?