Pricing Diamond Statistics Assignment

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Assignment 1 MGSC 372 Fall 2011 Pricing Diamond Stones Your goal is to develop a pricing model for diamond stones. We use data pertaining to 308 stones listed in an advertisement to construct a model, which educates us on the relative pricing of caratage and the different grades of clarity and colour. Introduction This example of an advertisement for diamond stones appeared in Singapore’s Business Times (see Figure 1). The analysis is to focus on data pertaining to n = 308 Round diamond stones. The data is contained in the Excel file Assignment 1 Data_Diamond Prices. [pic] The website educates the layperson on the factors that influence the price of a diamond stone. These are the 4 C's: Carat, Clarity, Colour and Cut. CARAT (WEIGHT) The weight of a diamond stone is indicated in terms of carat units. One carat is equivalent to 0.2 grams. All other things being equal, larger diamond stones command higher prices in view of their rarity. QUALITY Being products of Nature, diamonds have “birthmarks” or “inclusions” only visible under a jeweller's magnifying glass or a microscope. Diamonds with no inclusion under a loupe with a 10 power magnification are labelled IF (“internally flawless”). Lesser diamonds are categorized in descending order as “very very slightly imperfect” VVS1 or VVS2 and “very slightly imperfect” VS1 or VS2. COLOUR The most prized diamonds display colour purity. They are not contaminated with yellow or brown tones. Top colour purity attracts a grade of D. Subsequent degrees of colour purity are rated E, F, G, … all the way down the alphabet ladder. CERTIFICATION To assist shoppers, independent certification bodies assay diamond stones and provide each of them with a certificate listing their caratage and their grades of clarity, colour and cut. The newspaper advertisement however only

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