What is the right thing to do?

Your answer is fully correct because according to German traffic rules, when approaching a roundabout with a mandatory right sign, you must signal your intention to turn right to inform other road users.

Additionally, vehicles already inside the roundabout (here the yellow car) have the right of way, so they must be allowed to proceed first. You, as the entering driver, need to wait until it is safe.

This means you must indicate, and the yellow car must wait for you only if it is still outside or entering; however, here your right of way is confirmed by the mandatory direction and signaling, meaning the yellow car is required to wait for you.

Understanding signaling and yielding priorities at roundabouts helps you avoid accidents and ensures smooth traffic flow.