Making cake that is rainbow on the inside will require the following steps:
1) Using white cake, divide you batter up into five bowls.
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2) Now add food coloring to each bowl for each color of the rainbow. I prefer to use gel food coloring. This can be found at an arts and craft store with a cake decorating section.
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3) Once you have all your colors you will want to pour in each color one at a time. Pour the color into the center. Then pour the next color into the center. Do not stir or mix.
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4) Bake your cake!
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5) When it's done your cake will create rainbow circles on the top, but when you cut into it you will have bands of rainbow color!
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The original link where I learned how to do this is: http://www.omnomicon.com/rainbowcake
This page has great photos and explanations on how to make this cake!