I agree grandad is the correct spelling but only for UK and Australia but Duolingo is an american creation so the English used is American English. If you report it enough they eventually accept various spellings (like how UK English uses U in a few words that America doesnt but are now accepted due to wide range of users now. Duolingo = American but learning itself as we go along if you report it with a valid reason.
That's very much a personal thing. Merriam Webster (US, of course) have Granddad http://www.merriam-webster.com/dictionary/granddad, while Oxford go for Grandad http://www.oxforddictionaries.com/definition/english/grandad