What is the right course of action now?

Your answer is fully correct because braking sharply and yielding the right of way are appropriate responses in certain traffic situations that require caution and giving priority to other road users. In German traffic rules, if there is an unclear or potentially hazardous situation ahead—such as entering a built-up area where other vehicles or pedestrians may appear—you must be prepared to reduce speed significantly (brake sharply if necessary) and yield right of way to avoid accidents. Continuing to drive as before is often not safe if conditions have changed. Therefore, the combination of braking sharply and yielding the right of way follows the principles of defensive driving and prioritizing safety, which is why both actions are required here.