The answer is to enable a system-assigned managed identity on the VM. This is the correct choice because a system-assigned managed identity allows the VM to authenticate to Azure Key Vault without storing any passwords, certificates, or access tokens locally; Azure automatically creates a service principal in Azure AD for the VM, and the application retrieves an access token from the Azure Instance Metadata Service (IMDS) endpoint at 169.254.169.254. On the AZ-104 exam, this scenario tests your understanding of managed identities as a secure, credential-free authentication method, often appearing in questions about Key Vault access or secure application configurations. A common trap is choosing a user-assigned identity, which is unnecessary when only a single VM needs access, or incorrectly suggesting Key Vault access policies alone without an identity. Remember the memory tip: “One VM, one identity—system-assigned for simplicity.”
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 Azure administrator deploys a Linux VM that runs an application needing to read secrets from Azure Key Vault. The security policy forbids storing passwords, certificates, or access tokens on the VM. The application will run only on this single VM. What should be enabled on the VM?
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 enables the VM to authenticate to Azure Key Vault without storing any credentials on the VM. Azure automatically creates a service principal in Azure AD for the VM, and the application can obtain an access token from the Azure Instance Metadata Service (IMDS) endpoint (169.254.169.254) using that identity. This satisfies the security policy forbidding stored secrets because the identity is managed entirely by Azure and no passwords, certificates, or tokens are stored locally.
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.
✗
Store a service principal secret in a protected file and use it at startup.
Why it's wrong here
This still stores a credential on the VM, which conflicts with the security requirement.
✓
Enable a system-assigned managed identity on the VM.
Why this is correct
A system-assigned managed identity lets the VM authenticate to Azure resources without storing secrets.
Related concept
Read the scenario before looking for a memorised answer.
✗
Create a user-assigned managed identity and avoid assigning it to the VM.
Why it's wrong here
An identity that is not assigned to the VM cannot be used by the application at runtime.
✗
Use an SSH certificate to authenticate the app to Key Vault.
Why it's wrong here
SSH certificates are for SSH access, not for application authentication to Azure Key Vault.
Common exam traps
Common exam trap: answer the scenario, not the keyword
The trap here is that candidates may confuse SSH certificates (used for VM access) with Azure AD authentication tokens, or incorrectly assume that a user-assigned managed identity can be used without assignment to the VM.
Detailed technical explanation
How to think about this question
Under the hood, a system-assigned managed identity creates an Azure AD service principal tied to the VM's lifecycle. The application requests a token from the IMDS endpoint using a REST API call (e.g., `curl 'http://169.254.169.254/metadata/identity/oauth2/token?api-version=2018-02-01&resource=https://vault.azure.net' -H Metadata:true`), and Azure automatically rotates the underlying certificate used for authentication. In real-world scenarios, this eliminates the need for credential rotation and reduces the attack surface, as the token is only valid for a short duration (typically 8 hours) and is obtained on-demand.
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: Enable a system-assigned managed identity on the VM. — A system-assigned managed identity enables the VM to authenticate to Azure Key Vault without storing any credentials on the VM. Azure automatically creates a service principal in Azure AD for the VM, and the application can obtain an access token from the Azure Instance Metadata Service (IMDS) endpoint (169.254.169.254) using that identity. This satisfies the security policy forbidding stored secrets because the identity is managed entirely by Azure and no passwords, certificates, or tokens are stored locally.
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.
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Question Discussion
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