You are offered an oppertunity a property developer needs to borrow funds to build real estate in the UAE. He is willing to double your money and pay you back in around 3 months. He is offering collateral of uncut diamonds, but the collateral will remain in the vault of a local jeweller. You dont believe that you will get your money back in 3 months but think that the developer will possibly pay you back in 12 months and most likely within 36 months. You are trying to decide if any return is worth the risk. You estimate the following;

1 100,000 payback in 12 months 20%

2 100,000 payback in 24 months 20%

3 100,000 payback in 36 months 20%

4 250,000 in diamond in 48 months 20%

5 you recieve no money or diamond 20%

question: How would you structure the rights offer to maximise your ownership while raising 25,000 from the sale of rights?

Expected payoff after one year (12 months) = 0.2*100000 = 20000

Expected payoff after two year (24 months) = 0.2*100000 = 20000

Expected payoff after three year (36 months) = 0.2*100000 = 20000

Expected payoff after four year (48 months) = 0.2*250000 = 50000

Estimated IRR (r) is given by

-50000+20000/(1+r)+20000/(1+r)^2+20000/(1+r)^3+50000/(1+r)^4=0

Solving r = 0.3387476 or 33.87%