Sorry If i sound ignorant, because I'm a chemist not a physicist...but I know some. Is it assumed that the clay block takes all of the impact energy? I mean, do you have to account for energy loss due to the pellet entering, compressing, and displacing the clay matter? This energy transfer would realistically create a smaller rise than modeled if this loss isn't accounted for. But, it would also make the problem stupid difficult to solve...so I imagine there is an assumption that energy isn't lost due to this? Or am I making this over complicated?
If losses aren't to be considered, try finding a way to relate the forces where they balance each other. Maybe start with a force diagram of all forces present. Find the relationship of transferring energy, and see how the upward force at the moment of impact compares to the gravitational force pulling down on the block.
P.S. Haven't did problems like this is a LONG time, so if my rambling doesn't make sense, feel free to ignore it lol...I'm in the right book just not sure if I'm on the same page