Table:
|  | Upon 2018 Expiration | December 31, 2017 |
| --- | --- | --- |
| Assumptions: |  |  |
| Risk-free interest rate | 2.3% - 2.5% | 1.5% - 2.0% |
| Expected life | 1.8 - 2.2 Years | 2.5 - 3 Years |
| Expected volatility | 65% - 70% | 50% - 60% |
| Dividends | 0% | 0% |
Paragraphs:
DERIVATIVE LIABILITIES
In connection with the issuance of Series A-1 Preferred Stock in June 2017, the Company issued a warrant with variable consideration through September 2018. The Company determined that this instrument is an embedded derivative pursuant to ASC 815, “Derivatives and Hedging.” The accounting treatment of derivative financial instruments requires that the Company record the warrant, at its fair value as of the inception date of the agreement and at fair value as of each subsequent balance sheet date through the expiration of the variable consideration. Any change in fair value is recorded as a change in the fair value of derivative liabilities for each reporting period at each balance sheet date. The Company reassesses the classification at each balance sheet date. If the classification changes as a result of events during the period, the contract is reclassified as of the date of the event that caused the reclassification. On September 19, 2018, upon expiration of the variable consideration, the warrant liability of $4.5 million was reclassified to equity.
The Monte Carlo Valuation model is used to estimate the fair value of the warrant. The model was developed for use in estimating the fair value of traded options or warrants. The expected volatility is estimated based on the most recent historical period of time equal to the weighted average life of the instrument granted.
The risk-free interest rate used is the United States Treasury rate for the day of the grant having a term equal to the life of the equity instrument. The volatility is a measure of the amount by which the Company’s share price has fluctuated or is expected to fluctuate. The dividend yield is zero as the Company has not made any dividend payment and has no plans to pay dividends in the foreseeable future. The Company determines the expected term of its warrant awards by using the contractual term.
The principal assumptions used in applying the model were as follows:
Question:
What is the average expected life upon 2018 expiration?
Answer: (1.8 + 2.2)/2  = 2