- A
Assign a user-assigned managed identity to the VM so it can be shared later.
Why wrong: A user-assigned identity works, but it is not the simplest choice when only one VM needs access. It is designed to be reused across multiple resources and managed independently from the VM lifecycle.
- B
Enable a system-assigned managed identity on the VM.
A system-assigned managed identity is the best fit because it gives the VM an Azure identity without storing secrets on the machine. It is tied directly to that VM, so it is easy to create, use, and automatically remove when the VM is deleted. This matches the requirement for startup access to Key Vault and avoids any embedded credentials.
- C
Create a service principal and store its client secret in the VM configuration.
Why wrong: A service principal with a stored secret violates the requirement not to keep credentials on the VM. It also increases operational risk because the secret must be protected and rotated manually.
- D
Use a shared access signature in the startup script to authenticate to Key Vault.
Why wrong: A SAS token is for storage access, not for authenticating to Azure Key Vault. It also introduces time-bound secret handling, which the scenario explicitly wants to avoid.
Quick Answer
The answer is to enable a system-assigned managed identity on the Azure VM. This is correct because the identity is tied directly to the VM’s lifecycle, so when the VM is deleted, the identity is automatically cleaned up, and no passwords, certificates, or client secrets are ever stored on the VM. Instead, Azure creates a service principal in Azure AD, and the VM authenticates to Key Vault by requesting an access token from the Azure Instance Metadata Service (IMDS) endpoint at 169.254.169.254, which satisfies the strict security requirement. On the AZ-104 exam, this scenario tests your understanding of managed identities versus service principals or storing credentials in code—a common trap is choosing a user-assigned identity, but the question’s emphasis on the VM’s lifecycle points directly to system-assigned. Remember the mnemonic: “System for Lifecycle, User for Reuse.”
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.
Based on the exhibit, an Azure VM must read secrets from Azure Key Vault during startup. No passwords, certificates, or client secrets may be stored on the VM. What should you configure?
Answer choices
Why each option matters
Answer the question above first, then reveal the full breakdown to understand why each option is right or wrong.
Correct answer & explanation
Enable a system-assigned managed identity on the VM.
A system-assigned managed identity is the correct choice because it is tied directly to the VM's lifecycle, requires no credential storage, and can authenticate to Azure Key Vault without any secrets stored on the VM. When enabled, Azure automatically creates a service principal in Azure AD for the VM, and the VM can request an access token from the Azure Instance Metadata Service (IMDS) endpoint (169.254.169.254) to access Key Vault secrets. This satisfies the requirement of no passwords, certificates, or client secrets on the VM.
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.
- ✗
Assign a user-assigned managed identity to the VM so it can be shared later.
Why it's wrong here
A user-assigned identity works, but it is not the simplest choice when only one VM needs access. It is designed to be reused across multiple resources and managed independently from the VM lifecycle.
- ✓
Enable a system-assigned managed identity on the VM.
Why this is correct
A system-assigned managed identity is the best fit because it gives the VM an Azure identity without storing secrets on the machine. It is tied directly to that VM, so it is easy to create, use, and automatically remove when the VM is deleted. This matches the requirement for startup access to Key Vault and avoids any embedded credentials.
Related concept
Read the scenario before looking for a memorised answer.
- ✗
Create a service principal and store its client secret in the VM configuration.
Why it's wrong here
A service principal with a stored secret violates the requirement not to keep credentials on the VM. It also increases operational risk because the secret must be protected and rotated manually.
- ✗
Use a shared access signature in the startup script to authenticate to Key Vault.
Why it's wrong here
A SAS token is for storage access, not for authenticating to Azure Key Vault. It also introduces time-bound secret handling, which the scenario explicitly wants to avoid.
Common exam traps
Common exam trap: answer the scenario, not the keyword
The trap here is that candidates often confuse managed identities with service principals or shared access signatures, mistakenly thinking that a client secret or SAS token is needed for authentication, when in fact managed identities eliminate the need for any stored credentials.
Trap categories for this question
Scenario analysis trap
A SAS token is for storage access, not for authenticating to Azure Key Vault. It also introduces time-bound secret handling, which the scenario explicitly wants to avoid.
Detailed technical explanation
How to think about this question
Under the hood, when a system-assigned managed identity is enabled, Azure creates a service principal in Azure AD and injects a certificate into the VM's local certificate store (managed by the Azure fabric). The VM then uses the IMDS endpoint to obtain an access token for the managed identity, which is passed to Key Vault via the Bearer token in the Authorization header. A subtle behavior is that the token has a default lifetime of 8 hours, so the startup script must handle token refresh if the VM runs longer, though for startup this is typically sufficient.
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 media company stores terabytes of video archives that are accessed once a year for audit purposes. Moving these objects to a cold storage tier (Azure Archive, S3 Glacier, or Google Nearline) costs a fraction of hot storage. Questions like this test whether you understand storage tiers, access frequency tradeoffs, and retrieval latency requirements.
What to study next
Got this wrong? Here's your next step.
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FAQ
Questions learners often ask
What does this AZ-104 question test?
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: Enable a system-assigned managed identity on the VM. — A system-assigned managed identity is the correct choice because it is tied directly to the VM's lifecycle, requires no credential storage, and can authenticate to Azure Key Vault without any secrets stored on the VM. When enabled, Azure automatically creates a service principal in Azure AD for the VM, and the VM can request an access token from the Azure Instance Metadata Service (IMDS) endpoint (169.254.169.254) to access Key Vault secrets. This satisfies the requirement of no passwords, certificates, or client secrets on the VM.
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.
What is the key concept behind this question?
Read the scenario before looking for a memorised answer.
About these practice questions
Courseiva creates original exam-style practice questions with explanations and wrong-answer analysis. It does not publish real exam questions, exam dumps, or protected exam content. Learn why practice questions differ from exam dumps →
Same concept, more angles
3 more ways this is tested on AZ-104
These questions test the same concept from different angles. Work through them to make sure you can recognise it however the exam phrases it.
Variation 1. A web app running on an Azure VM must read files from Azure Blob Storage without storing any passwords, secrets, or access keys on the VM. The identity should be tied to that VM and removed automatically if the VM is deleted. What should you enable?
easy- ✓ A.A system-assigned managed identity
- B.A shared storage account key in the application settings
- C.A user account with a local password on the VM
- D.A service endpoint on the VM subnet
Why A: A system-assigned managed identity is the correct choice because it creates an identity in Azure AD that is tied directly to the lifecycle of the VM. When the VM is deleted, the identity is automatically removed. The VM can use this identity to authenticate to Azure Blob Storage via Azure AD without storing any credentials on the VM, using the Azure Instance Metadata Service (IMDS) to obtain tokens.
Variation 2. A VM-hosted app must read blobs from Azure Storage without storing a shared key, SAS token, or password. Which two configuration steps should the administrator take? Select two.
easy- ✓ A.Enable a system-assigned managed identity on the VM.
- ✓ B.Assign the Storage Blob Data Reader role to that identity on the storage account.
- C.Store the storage account access key in the app configuration.
- D.Generate a SAS token and embed it in the application code.
- E.Move the VM into a different subnet.
Why A: A system-assigned managed identity on the VM allows Azure to automatically manage a service principal for the VM, eliminating the need for any stored credentials. By assigning the Storage Blob Data Reader role to that identity on the storage account, the VM can authenticate to Azure Storage using Azure AD tokens obtained via the Azure Instance Metadata Service (IMDS) endpoint, without ever storing a shared key, SAS token, or password.
Variation 3. A single Azure virtual machine must read blobs from a storage account without storing any passwords, keys, or connection strings. The identity should be removed automatically if the VM is deleted. Which option should you use?
easy- A.Storage account access key, because it is the simplest authentication method.
- ✓ B.System-assigned managed identity, because it is tied to that VM.
- C.Shared access signature, because it always removes the need for identity management.
- D.User-assigned managed identity, because it is deleted automatically with the VM.
Why B: System-assigned managed identity is tied directly to the lifecycle of the Azure VM. When the VM is deleted, the identity is automatically removed. It allows the VM to authenticate to Azure Storage without storing any credentials, using Azure AD tokens obtained via the Azure Instance Metadata Service (IMDS).
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Last reviewed: Jun 11, 2026
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