Answer:
So the idea is that we want to find the total number of ways that we can pick 7 diamonds (real or fake) from the 12 diamonds.
So as you said, 12 choose 7 = 792
Now we need the total number of ways that we can satisfy that of the 7 we picked, exactly three are real, but this also means that four are fake.
So to choose 3 real from 5 is 5 choose 3 = 10
And to choose 4 fake from 7 is 7 choose 4 = 35
3x10/792= 350/792= 175/396