The answer is to configure a system-assigned managed identity on the Azure VM. This is correct because a system-assigned managed identity allows a script running on the VM to authenticate to Azure services, such as Azure Resource Manager, without storing any passwords or client secrets on the VM. Azure automatically creates and manages this identity, and the script can obtain an access token from Azure AD by making a simple HTTP call to the Instance Metadata Service (IMDS) endpoint at 169.254.169.254. On the AZ-104 exam, this scenario tests your understanding of identity-based authentication versus key-based or secret-based methods, often appearing as a trap where you might mistakenly choose a service principal or storage of credentials. The key memory tip is “IMDS for IMmediate credentials”—the VM uses its local metadata service to fetch a token instantly, eliminating the need for any hardcoded secrets.
AZ-104 Manage Azure Identities and Governance Practice Question
This AZ-104 practice question tests your understanding of manage azure identities and governance. This is a configuration task: choose the command set that satisfies every stated requirement. Small differences — like 'secret' vs 'password' or 'transport input ssh' vs 'all' — change whether the answer is correct. After answering, compare your reasoning against the explanation and wrong-answer breakdown below. Once you have made your selection, read the full explanation to reinforce the concept and understand why each distractor is designed to mislead on exam day.
An administrator wants a script running on an Azure VM to create a resource in Azure without storing any passwords or client secrets on the VM. What should the administrator configure first?
Clue words in this question
Noticing these words before you look at the options changes how you read each choice.
Clue: "first"
Why it matters: Order matters here. You are being tested on which action comes before the others — not which action is generally useful.
Answer the question above first, then reveal the full breakdown to understand why each option is right or wrong.
Correct answer & explanation
✓
A system-assigned managed identity on the VM
A system-assigned managed identity enables an Azure VM to authenticate to Azure services (e.g., Azure Resource Manager) without storing any credentials in the VM. The identity is automatically created and managed by Azure, and the VM can obtain an access token from Azure AD via the Instance Metadata Service (IMDS) endpoint (169.254.169.254) using a simple HTTP call. This allows the script to securely create resources without hardcoding passwords or client secrets.
Key principle: Answer the scenario, not the keyword: identify the specific constraint before choosing the most familiar-sounding option.
Answer analysis
Option-by-option breakdown
For each option: why learners choose it and why it is or isn't the right answer here.
✗
A shared local account on the VM
Why it's wrong here
A local account helps with operating system access, but it does not securely authenticate to Azure APIs.
✓
A system-assigned managed identity on the VM
Why this is correct
A managed identity lets the VM authenticate to Azure directly, so the script can use Azure CLI or PowerShell without secrets.
Clue confirmation
The clue word "first" in the question point toward this answer.
Related concept
Read the scenario before looking for a memorised answer.
✗
An Azure Policy exemption
Why it's wrong here
Policy exemptions affect governance rules, not authentication for scripts or Azure resource creation.
✗
A public IP address on the VM
Why it's wrong here
A public IP affects network reachability, but it does not replace Azure authentication credentials.
Common exam traps
Common exam trap: answer the scenario, not the keyword
The trap here is that candidates may confuse managed identities with service principals or think a public IP is needed for outbound authentication, but the IMDS endpoint works entirely within the Azure network without requiring a public IP.
Detailed technical explanation
How to think about this question
Under the hood, the system-assigned managed identity creates a service principal in Azure AD tied to the VM's lifecycle. The VM requests a token from the Azure Instance Metadata Service (IMDS) at http://169.254.169.254/metadata/identity/oauth2/token, which returns an access token without any secret exchange. This token is then used in the Authorization header of Azure Resource Manager REST API calls, enabling the script to perform operations like creating a resource group or a storage account. A real-world scenario is automating backup scripts that need to create recovery services vaults without exposing credentials in code.
KKey Concepts to Remember
Read the scenario before looking for a memorised answer.
Find the constraint that changes the correct option.
Eliminate answers that are true in general but not in this case.
TExam Day Tips
→Watch for words such as best, first, most likely and least administrative effort.
→Review why wrong options are wrong, not only why the correct option is correct.
Key takeaway
Answer the scenario, not the keyword: identify the specific constraint before choosing the most familiar-sounding option.
Real-world example
How this comes up in practice
A company's IT admin needs to give a contractor read-only access to production logs without sharing account credentials. Using role-based access control (RBAC) and temporary scoped permissions — not a permanent shared password — is the correct pattern. Questions like this test whether you can apply least-privilege access across cloud identity services.
Related glossary terms
Concepts from this question explained
These glossary pages explain the core terms tested in this AZ-104 question in full detail.
Manage Azure Identities and Governance — This question tests Manage Azure Identities and Governance — Read the scenario before looking for a memorised answer..
What is the correct answer to this question?
The correct answer is: A system-assigned managed identity on the VM — A system-assigned managed identity enables an Azure VM to authenticate to Azure services (e.g., Azure Resource Manager) without storing any credentials in the VM. The identity is automatically created and managed by Azure, and the VM can obtain an access token from Azure AD via the Instance Metadata Service (IMDS) endpoint (169.254.169.254) using a simple HTTP call. This allows the script to securely create resources without hardcoding passwords or client secrets.
What should I do if I get this AZ-104 question wrong?
Identify which exam domain this question belongs to, review the core concept, then practise similar questions from the same domain.
Are there clue words in this question I should notice?
Yes — watch for: "first". Order matters here. You are being tested on which action comes before the others — not which action is generally useful.
What is the key concept behind this question?
Read the scenario before looking for a memorised answer.
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Question Discussion
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