While your exam will be somewhat random and unique, most Series 7 test takers don’t report seeing a significant amount of CMO questions on the exam. I’d expect at least a couple of questions on the topic, maybe upwards of 4-5 questions at most*.
*These are estimates based on reports test takers make in online forums, and are not guaranteed to be the case on your exam.
PACs and TACs are a subset of CMOs, so it’s possible you may not even get a single question on them specifically (maybe just a few general mortgage backed security questions). The Achievable practice and exam questions should give you a good idea of the most tested topics on PACs and TACs. The most important things to remember are:
- PACs have protection against both prepayment and extension risk
- TACs only have protection against prepayment risk
- CMOs reduce prepayment and extension risk as compared to pass through certificates
- Suitability for CMOs (in general):
- Produces consistent and regular (monthly) income
- Fairly safe from default risk (due to government backing); most are AAA rated
- Subject to interest rate risk, and varying levels of prepayment or extension risk
- Unknown maturity
- Suitable for income-seeking investor with moderate to low risk tolerance; investor must be comfortable with unknown maturity, and potential prepayment and extension risk
I hope this helps!