GIA Appraisal Methods & Valuation 2 — Questions and Answers
Question 1: Which appraisal approach is most commonly used for valuing diamonds intended for insurance replacement purposes?
- Income approach
- Retail replacement value approach (Correct answer)
- Wholesale liquidation approach
- Cost approach
Correct answer: Retail replacement value approach
Insurance appraisals use retail replacement value, reflecting the cost to replace the item with one of like kind and quality at retail.
Question 2: A diamond appraisal conducted for estate tax purposes should reflect which value?
- Retail replacement value
- Insurance replacement value
- Fair market value (Correct answer)
- Liquidation value
Correct answer: Fair market value
Estate tax appraisals require fair market value—the price a willing buyer would pay a willing seller with no compulsion to transact.
Question 3: The 'Rapaport Price List' is primarily used in the diamond industry as:
- A retail price guide for consumers
- A wholesale benchmark for polished diamonds (Correct answer)
- A grading standard for colored stones
- A futures pricing tool for rough diamonds
Correct answer: A wholesale benchmark for polished diamonds
The Rapaport Price List serves as a widely used wholesale benchmark expressing prices per carat for polished diamonds by shape, size, color, and clarity.
Question 4: When calculating the per-carat value of a 2.50 ct diamond listed at $8,000 per carat, what is the total value?
- $16,000
- $18,000
- $20,000 (Correct answer)
- $22,500
Correct answer: $20,000
Total value = weight × per-carat price = 2.50 ct × $8,000/ct = $20,000.
Question 5: Which factor causes the 'size premium' effect in diamond pricing?
- Larger diamonds are rarer and command exponentially higher per-carat prices (Correct answer)
- Larger diamonds have lower production costs per carat
- Retail margins decrease as diamond size increases
- Larger diamonds always have better clarity grades
Correct answer: Larger diamonds are rarer and command exponentially higher per-carat prices
Larger gem-quality diamonds are exponentially rarer in nature, so per-carat prices increase non-linearly with size.
Question 6: A 'discount to Rapaport' of –20% on a 1.00 ct G/VS2 round indicates:
- The diamond is priced 20% above the list price
- The diamond sells for 80% of the Rapaport benchmark price (Correct answer)
- The diamond has a clarity grade adjustment of 20 points
- The seller is offering a 20% markup over cost
Correct answer: The diamond sells for 80% of the Rapaport benchmark price
A –20% discount means the actual transaction price is 80% of the Rapaport list price for that grade combination.
Question 7: Which characteristic most significantly reduces a diamond's per-carat market value relative to its GIA grade?
- A slightly asymmetrical culet
- A strong blue fluorescence under UV light
- An eye-visible inclusion (I1 clarity) (Correct answer)
- A color grade of J with good cut
Correct answer: An eye-visible inclusion (I1 clarity)
An I1 clarity grade with eye-visible inclusions substantially depresses per-carat value because the inclusions affect beauty and durability perception.
GIA Appraisal Methods & Valuation 2
Which appraisal approach is most commonly used for valuing diamonds intended for insurance replacement purposes?