What is correct?

You answered correctly. In this situation, a police officer is directing traffic. The raised hand signals that all traffic in front of the officer must stop, which includes you and the yellow car. However, the yellow car is being signaled by the officer to leave the intersection. So, the yellow car must leave the crossroads, and you should get ready to proceed, but you cannot turn yet. This matches answers 1 and 2. In future situations with police directing traffic, always follow their instructions, as they override signals and signs.