- A
The VM's managed identity
The VM’s managed identity lets scripts or Azure CLI commands authenticate to Azure without storing secrets on the machine. After the identity is enabled and granted the needed role, the command can sign in by using the identity instead of a password or service principal secret. This is the secure and practical approach.
- B
A local administrator password
Why wrong: A local administrator password only authenticates to the operating system and does not authorize Azure resource creation. It also requires secret storage and does not meet the requirement to avoid credentials on the VM. It is not an Azure management authentication method.
- C
A network security group rule
Why wrong: A network security group rule only controls traffic flow. It does not authenticate Azure CLI sessions or grant rights to create resources. Network access and Azure authorization are separate concerns.
- D
An Azure region paired with the VM
Why wrong: A region or paired region affects resource placement and disaster recovery options, not authentication. It does not give a VM permission to create Azure resources and does not replace identity-based access.
Quick Answer
The answer is the VM’s managed identity, because it provides a secure, credential-free way for a virtual machine to authenticate to Azure services. Azure Managed Identity automatically creates a service principal in Azure AD for the VM, and when the administrator runs an Azure CLI command from inside the VM, the CLI can request an access token from the Azure Instance Metadata Service endpoint at 169.254.169.254/metadata/identity/oauth2/token—no passwords, keys, or certificates are ever stored on the VM. On the AZ-104 exam, this scenario tests your understanding of how to eliminate credential management in automated tasks; a common trap is thinking a service principal with a client secret is needed, but that would require storing the secret on the VM, defeating the purpose. Remember the key phrase: “managed identity = no credentials on the box.” For a quick memory tip, think of the endpoint IP as “169.254.169.254” — the last three octets spell “MET” for Metadata Endpoint Token.
AZ-104 Manage Azure Identities and Governance Practice Question
This AZ-104 practice question tests your understanding of manage azure identities and governance. Match the stated requirement to the specific cloud service, access model, or configuration option — many options are valid in isolation but not for this scenario. 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 to run a one-time Azure CLI command from inside a VM to create a resource in Azure, but the administrator does not want to store credentials on the VM. What should be used for authentication?
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
The VM's managed identity
Azure Managed Identity provides an automatically managed identity in Azure AD that allows a VM to authenticate to any service that supports Azure AD authentication, including Azure Resource Manager, without storing any credentials on the VM. When the administrator runs the Azure CLI command from within the VM, the CLI can use the managed identity's token endpoint (169.254.169.254/metadata/identity/oauth2/token) to obtain an access token, enabling secure, credential-free resource creation.
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.
- ✓
The VM's managed identity
Why this is correct
The VM’s managed identity lets scripts or Azure CLI commands authenticate to Azure without storing secrets on the machine. After the identity is enabled and granted the needed role, the command can sign in by using the identity instead of a password or service principal secret. This is the secure and practical approach.
Related concept
Read the scenario before looking for a memorised answer.
- ✗
A local administrator password
Why it's wrong here
A local administrator password only authenticates to the operating system and does not authorize Azure resource creation. It also requires secret storage and does not meet the requirement to avoid credentials on the VM. It is not an Azure management authentication method.
- ✗
A network security group rule
Why it's wrong here
A network security group rule only controls traffic flow. It does not authenticate Azure CLI sessions or grant rights to create resources. Network access and Azure authorization are separate concerns.
- ✗
An Azure region paired with the VM
Why it's wrong here
A region or paired region affects resource placement and disaster recovery options, not authentication. It does not give a VM permission to create Azure resources and does not replace identity-based access.
Common exam traps
Common exam trap: answer the scenario, not the keyword
The trap here is that candidates may confuse authentication with authorization or network controls, thinking a local password or NSG rule can somehow grant Azure resource creation permissions, when only an Azure AD-backed identity like a managed identity can provide credential-free authentication to ARM.
Detailed technical explanation
How to think about this question
Under the hood, a system-assigned managed identity creates a service principal in Azure AD automatically tied to the VM's lifecycle. The Azure CLI uses the 'az login --identity' command to authenticate via the Instance Metadata Service (IMDS) endpoint, which returns a JWT token that is then used for all subsequent ARM API calls. A real-world scenario is automating backup scripts or configuration management tools (e.g., Terraform, Ansible) on a VM without hardcoding secrets, where the managed identity's token is automatically rotated by Azure every 8 hours.
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.
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: The VM's managed identity — Azure Managed Identity provides an automatically managed identity in Azure AD that allows a VM to authenticate to any service that supports Azure AD authentication, including Azure Resource Manager, without storing any credentials on the VM. When the administrator runs the Azure CLI command from within the VM, the CLI can use the managed identity's token endpoint (169.254.169.254/metadata/identity/oauth2/token) to obtain an access token, enabling secure, credential-free resource creation.
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
1 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. Based on the exhibit, which identity should the administrator enable to remove the secret from app settings and have the identity disappear automatically when the app is deleted?
easy- A.User-assigned managed identity
- B.Service principal with a client secret
- ✓ C.System-assigned managed identity
- D.Shared access signature
Why C: The system-assigned managed identity is tied directly to the lifecycle of the Azure resource (e.g., an App Service). When you enable it, Azure automatically creates a service principal in Azure AD for that resource, and you can use the identity to access Azure Key Vault without storing secrets in app settings. When the resource is deleted, the system-assigned managed identity and its corresponding service principal are automatically removed, eliminating the need for manual cleanup.
Last reviewed: Jun 11, 2026
This AZ-104 practice question is part of Courseiva's free Microsoft certification practice question bank. Courseiva provides original exam-style practice questions with explanations, topic-based practice, mock exams, readiness tracking, and study analytics to help learners prepare for the AZ-104 exam.
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