The correct answer is indeed 1, 2, and 3 because the formation of a rainbow involves a combination of these three physical phenomena.

1. Dispersion occurs as sunlight passes through raindrops, splitting light into its constituent colors (spectrum) due to different wavelengths of light bending by varying degrees.
2. Refraction happens when light enters and exits the raindrop, bending at both interfaces due to the change in medium from air to water and back to air.
3. Internal reflection occurs when the light reflects off the inner surface of the raindrop, contributing to the specific angles necessary for the light to emerge and form a rainbow.

Together, these processes explain the captivating display of colors seen in a rainbow as a unique optical phenomenon.