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It was Sir Isaac Newton who discovered that sunlight falling upon a prism could split into its component colours. This process is known as dispersion. Newton named the component colours: red, orange, yellow, green, blue, indigo and violet. Most of these are easy to distinguish except for indigo. Legend has it that Newton included indigo because he felt that there should be seven rather than six colours in a rainbow due to his strong religious beliefs.
When view from the ground, a rainbow appears as all or part of a great arc of colour. When viewed from a plane it is possible to see an entire circle as you can look down on raindrops as well as up to them. 
You dont necessaryily need to have rain to have a rainbow. This photograph shows a rainbow formed in the mist of water droplets created by a waterfall.  There is even a man who makes rainbows using water sprays on fire-fighting boats.