EQ = y’‘[x] + 1/x y’[x] - (1 + v^2/x^2) y[x] == 0;
SOL = DSolve[EQ, y, x]
{{y → Function[{x}, Evaluate@(SOL[[1, 1, 2, 2]] // FunctionExpand)]}}
EQ /. SOL // FullSimplify(We can check is solution is True)
(True)
Yes modified Bessel function are solution for this equation.
“Why Mathematica give the modified Bessel equation the solution of Bessel functions rather than modified Bessel functions?”, I do not know the answer to this question.